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MONETARY LAW ACT

(Chapter 422)
(Incorporating Amendments
up to 31st December, 2006)

Printed by the Central Bank of Sri Lanka

MONETARY LAW ACT


(Chapter 422)

(Incorporating Amendments
up to 31st December, 2006)

MONETARY LAW ACT


(CHAPTER 422)
Owing to the numerous amendments made to the
Monetary Law Act, it has become necessary to publish a
reprint of that Act. This reprint which incorporates all
amendments made to that Act up to 31st December,
1998 is, however, not a statutory reprint. It is only issued
for purposes of convenience.
Governor,
Central Bank of Sri Lanka

Disclaimer
As no amendments were introduced to the Monetary Law Act No. 58
of 1949 between December 1998 to December 1999, the following
text is a representation of the law as at 31st December 1999. It is an
unofficial version and does not constitute a statutory reprint.
Every effort has been made to ensure the accuracy of the text but the
Central Bank of Sri Lanka does not hold itself responsible for any errors
or omissions.

(vii)

TABLE OF SECTIONS
CHAPTER I
ESTABLISHMENT OF THE MONETARY UNIT
Section

Page

1. Short title

2. The unit of monetary value

3. The par value of the rupee

4. The use of the rupee

CHAPTER II
ESTABLISHMENT OF THE CENTRAL BANK TO ADMINISTER AND
REGULATE THE MONETARY SYSTEM
Part I - The Central Bank, its powers and purposes
5.

Establishment and objectives of Central Bank

5A. Powers of the Central Bank and the Monetary Board in relation
to section 69A of the Inland Revenue Act, No.4 of 1963
4
6. Capital of Central Bank

7. Place of business

Part II - The Monetary Board


8. Constitution of Monetary Board

9. Monetary Board to be a body corporate

10.

General powers of Monetary Board

11. Disqualification for appointment as Governor or as member of


Monetary Board

12.

Appointment, remuneration, &c. of Governor of Central Bank

13.

Term of office of Governor and appointed member

14.

Remuneration of appointed member

15.

Alternate for appointed member

16.

Removal from office of Governor or appointed member

17.

Meetings of Monetary Board

18.

Attendance of certain officers at meetings of Monetary Board

(viii)

Section

Page
Part III - The Governor and the Deputy Governors

19.

General functions and duties of Governor

20.

Governor to be principal representative of Central Bank


and Monetary Board

21.

Delegation of powers of Governor

10

22.

Appointment of Deputy Governor

10

23.

Disqualification and removal of Deputy Governors

10

24.

Deputy Governor to act as Governor

11

24A. Authority of Deputy Governor to obtain Information

11

Part IV - Departments of the Central Bank


(A) The Department of Economic Research
25.

Establishment and functions of department of


economic research

12

26.

Authority to obtain information

12

27.

Training of technical personnel

13

(B) The Department of Bank Supervision


28.

Establishment and functions of department of bank supervision 13

29.

Examination of banking institutions

13

29A. Continuous supervision of banking institutions

14

29B. Director of Bank Supervision to examine books of any


subsidiary or agency of a banking institution or
of a Co-operative Society carrying on banking business

14

30.

Power of Monetary Board to suspend or restrict business


of a banking institution

15

31.

Winding up of a banking institution

18

32.

Offences in regard to information and examinations

18

32A. Scheme to insure deposits held by banking institutions and


co-operative societies

18

32B. Insurance of deposits held by banking institutions or societies

18

32C. Premiums payable on deposits

19

32D. Examination of insured banks and insured societies &c.

19

32E. Regulations

19

(ix)

Section

Page
(C) Other Departments

33.

Other Departments

20

Part V - Reports and Publications


34.

Monthly statement

20

35.

Annual report

20

36.

Signatures on balance sheets and financial statements

20A

Part VI - Profits, Losses and Special Accounts


37.

Financial year

20A

38.

Computation of profits and losses

20A

39.

Distribution of profits

20A

40.

Extraordinary expenses of currency issue and


monetary stabilization

21

41.

Revaluation profits and losses

21

42.

Audit

21

43.

Powers and functions

22

Part VII - Audit

Part Vlll - Restrictions Relating to Central Bank Officers and Servants


45.

Duty to maintain secrecy

22

46.

Liability for false statements in Central Bank accounts, &c.

23

47.

Protection for acts done in good faith, &c.

23

CHAPTER III
THE CENTRAL BANK AND THE MEANS OF PAYMENT
Part I - Issue of Means of Payment
(A) Currency
48.

Definition of currency

24

49.

Issue power

24

50.

Prohibition against issue of notes by any person


other than Central Bank

24

51.

Liability for notes and coins

24

52.

Currency to be legal tender

24

(x)

Section

Page

52A. Issue of commemorative currency notes or coins

24

53.

Characteristics of currency

25

54.

Contracts for printing of notes and minting of coins

25

55.

Exchange of currency

25

56.

Replacement of currency unfit for circulation

25

57.

Retirement of old notes and coins

26

58.

Mutilation or defacement of currency notes

26

58A. Use of currency coins otherwise than as legal tender


59.

Conclusive evidence of imitation of currency note

59A. Conclusive evidence of imitation of a coin or current coins

26
27
27

(B) Demand Deposits


60.

Definition of demand deposits

28

61.

Acceptance and creation of demand deposits

29

Part II - The Money Supply


62.

Expression of the Definition of the money supply

29

Part III - Payment and Settlement Systems


62A. Establishment of systems for transfer of funds and
transfer and settlement of Scripless Securities

29

CHAPTER IV
THE CENTRAL BANK AND NATIONAL MONETARY POLICY
Part I - Domestic Monetary Stabilization
63.

Principles governing determination of domestic monetary policy 29C

64.

Action to preserve domestic monetary stability

29D

Part II - International Monetary Stabilization


65.

Principles governing determination of


international monetary policy

30

66.

International Reserve

30

67.

Composition of International Reserve

31

68.

Action to preserve the international stability of the rupee

31

(xi)

Section

Page
CHAPTER V
INSTRUMENTS OF CENTRAL BANK ACTION
Part I - Operations in Gold and Foreign Exchange

70.

Dealings in gold

32

71.

Foreign exchange operations of Central Bank

32

72.

Purchases and sales of foreign exchange from or to


commercial banks in Sri Lanka

33

73.

Parities of foreign currencies with respect to the rupee

33

74.

Exchange rates for Central Bank transactions

34

75.

Loans to and from foreign institutions &c

34

Part II - Regulation of Foreign Exchange Operations of Commercial Banks


76.

Rates applicable to purchases and sales of exchange by


commercial banks

76A. Governors powers in relation to exchange rate

35
35

77.

Control of foreign exchange holdings of commercial banks

37

78.

Requirements regarding currency positions of


commercial banks

38

Revaluation profits and losses on holdings of


foreign exchange by banking institutions

38

80.

Information on exchange operations

39

81.

Capital movements

39

79.

Part III - Credit Operations with Banking Institutions


82.

Principles governing credit operations

40

83.

Types of operations normally authorized

40

84.

Extension of maturities

41

85.

Loans to mortgage institutions

41

86.

Emergency loans and advances

42

87.

Interest and discount rates

42

88.

General conditions as to grant of credit facilities

43

(xii)

Section

Page

Part IIIA - Medium and Long-Term Credit Operations with Credit


Institutions
88A. Loans or advances to credit institutions

43

88B. Instrument of assignment by way of pledge to the


Central Bank to be free of stamp duty

44

88C. Instrument of assignment by way of pledge to the Central Bank


need not be registered under the Registration of
Documents Ordinance
44
88D. Notarial executions not required in case of assignments
by way of pledge

44

88E. Medium and Long Term Credit Fund

44

88F. Interpretation

45

88G. This part of this Act to prevail over other written law

45

Part IV - Credit Operations with the Government


89.

Provisional advances to the Government

45

Part V - Open-Market Operations


90.

Principles governing open-market operations

46

91.

Authority of Central Bank to transact open-market operations

46

92.

Conditions as to issue of securities by Central Bank

47

Part VI - Regulation of the Reserves of Commercial Banks


and Prescribed Financial Institutions
93.

Reserve requirements

47

94.

Monetary Board to prescribe reserve ratios

48

95.

Interest on reserves when payable

48

96.

Computation of required reserves

48

97.

Consequences of reserve deficiencies

48

98.

Clearance and settlement

49

98A. Powers of the Director of Bank Supervision

49

98B. Interpretation for Part VII

49

Part VII - Additional Regulation of Credit Operations of Banking


Institutions
99.

Principles governing additional regulation

49

(xiii)

Section

Page

100. Maturities of bank loans and security therefor

49

101. Limitation of loans and investments of commercial banks

49

102. Minimum capital ratios

50

103. Margin requirements against letters of credit

50

104. Fixing of interest rates, commissions and charges

50

105. Conditions of eligibility of credit instruments for discount, &c.


by Central Bank
51

CHAPTER VA
THE CENTRAL BANK TO PURCHASE SHARES IN CERTAIN COMPANIES
105A. Central Bank to purchase shares in companies

51

CHAPTER VI
THE CENTRAL BANK AS FISCAL AGENT, BANKER AND
FINANCIAL ADVISOR OF THE GOVERNMENT
106. Central Bank to be fiscal agent and banker of the government 51
107. Offcial depository of the government

51

108. Loan guarantees and loan insurance

52

108A. Guarantee of loans to samall-scale enterprises

52

109. Other institutions as agents of Central Bank

52

110.

52

Remuneration for services

111. Representation with foreign governments, agencies, and


international institutions

53

112.

Issue of government securities

53

Facilities for maintenance of accounts at the


Central Bank and a depository for Scripless Securities

53

Any body corporate to provide facilities under


section 98(1) and 112A.

54

113.

Management of the public debt

54

114.

Advice on Government credit operations

54

112A.
112B.

(xiv)

Section
115.
116.

Page

Recommendations as to policy &c. of Government agencies


or institutions

54

Monetary policy and fiscal policy

54

CHAPTER VII
GENERAL
117.

Business which Central Bank may not transact

55

118.

Exemption from income tax, import duty and


stamp duty

55

Acts of Monetary Board valid notwithstanding


subsequent discovery of disqualification

56

119.

120. Officers and servants to be deemed public servants


for purposes of Chapter IX of Penal Code

56

120A. Release of officers and servants of the Central Bank

56

121. Protection for banking institutions

56

122. Offences and penalties

56

123. Offences by corporations

57

124. Exclusion of application of Companies Ordinance

57

125. Provision for conflict with other written law

57

126. Defence (Finance) Regulations, &c.

57

127. Interpretation

57
CHAPTER VIII
TRANSITIONAL PROVISIONS

128. Validity of currency in circulation, &c.

59

129. Appointment of pensionable public officers to


posts in Central Bank

59

130. Contributions by Central Bank in respect of


pensionable public officers appointed to posts in the bank

60

CHAPTER 422
MONETARY LAW ACT
AN ACT TO ESTABLISH THE MONETARY SYSTEM OF SRI LANKA AND THE CENTRAL
BANK, TO ADMINISTER AND REGULATE THE SYSTEM AND TO CONFER AND IMPOSE
UPON THE MONETARY BOARD OF THE CENTRAL BANK POWERS, FUNCTIONS AND
RESPONSIBILITIES NECESSARY FOR THE PURPOSES OF SUCH ADMINISTRATION AND
REGULATION, AND TO PROVIDE FOR CONNECTED MATTERS.

Acts
Nos. 58 of 1949
33 of 1954
11 of 1963
(.67,)
18 of 1965
(.56)
16 of 1967
5 of 1968
21 of 1968
2 of 1969
(.7,)
30 of 1971
(.88,)
Laws
Nos. 37 of 1974
16 of 1977
(.8)
10 of 1978

[Chapter II - 16th December, 1949]


[Chapter I, III to VIII - 28th August, 1950]
1. This Act may be cited as the Monetary Law Act.

Acts
Nos. 14 of 1979
62 of 1980
52 of 1985
7 of 1988
30 of 1988
(.84)
26 of 1995
6 of 1998
32 of 2002
9 of 2006]
Short title.

CHAPTER 1
ESTABLISHMENT OF THE MONETARY UNIT
2. (1) The standard unit of monetary value in Sri Lanka shall be
the Sri Lanka rupee, which shall be represented by the signs Re. and
Rs.

The unit of
monetary
value.

(2) The Sri Lanka rupee shall be divided into one hundred units
each of which shall be called a cent.
3. (1) The Monetary Board shall by unanimous decision,
recommend to the Minister in charge of the subject of Finance that the
par value of the Sri Lanka rupee be determined in terms of special
drawing rights or in terms of such other common denominator as may be
prescribed by the International Monetary Fund, and upon such
recommendation, the Minister in charge of the subject of Finance shall,
by Order published in the Gazette, determine and declare the par value of
the Sri Lanka rupee in accordance with the terms specified in such
recommendation:

The par value


of the rupee.
(.8, Law 10 of
1978)

Cap 422]

MONETARY LAW

(7th Rev.)

Provided, however, that if the Monetary Board is of the view that


international economic conditions do not warrant the introduction or
maintenance of exchange arrangements based on stable but adjustable par
values, it may, by unanimous decision, recommend to the Minister in
charge of the subject of Finance that no determination be made under the
preceding provisions of this section or that any Order made under this
section be revoked, and upon any such recommendation, the Minister in
charge of the subject of Finance shall desist from making an Order under
this section, or, as the case may be, revoke an Order made under this
section.
(2) The Monetary Board may by unanimous decision
recommend to the Minister in charge of the subject of Finance the
alteration of the par value of the Sri Lanka rupee, if the Board is of the
opinion that such alteration of the par value of the Sri Lanka rupee is
rendered necessary in any of the following circumstances, that is to say
(a) if the continuance of the existing par value hinders or is likely
to hinder unduly, the achievement and maintenance of a high
level of production, employment and real income and the full
development of the productive resources of Sri Lanka, or
results, or is likely to result, in a serious decline in the
International Reserve of the Central Bank or in other utilizable
external assets of Sri Lanka or if such decline cannot be
prevented except by
(i) a large scale increase in the external liabilities of Sri
Lanka;
(ii) the persistent use of restrictions on the convertibility of the
rupee into foreign currencies in settlement of current
transactions; or
(iii) undue or sustained Government assistance to one or more
of the major export industries; or
(iv) prolonged use of measures designed to restrict the volume
of imports of essential commodities; or
(b) if the maintenance of the existing par value is producing, or is
likely to produce, a persisting surplus in the balance of
payments on current account and a monetary disequilibrium
which cannot be adequately corrected by other Government or
by Central Bank action authorised by this Act; or
(c) if uniform proportionate changes in the par values of currencies
of its members are made by the International Monetary Fund,
and upon such recommendation, the Minister in charge of the subject of
Finance may, by Order published in the Gazette, amend, in accordance
with the terms specified in such recommendation, any Order made under
subsection (1).

(7th Rev.)

MONETARY LAW

[Cap 422

(3) Any Order made under subsection (1) or subsection (2) shall
cease to have effect after a period of ten days from the date of
publication thereof, unless such Order is approved by Parliament within
that period:
Provided however, that if Parliament is not in session on the date
of publication of the Order, the Order shall cease to have effect after a
period of ten days from the date of the next meeting of Parliament,
unless such Order is approved by Parliament within that period.
4. (1) Every obligation of the following description, that is to say,
every contract, sale, payment, bill, note, instrument, and security for
money, and every transaction, dealing, matter, and thing whatsoever
relating to money, or involving the payment of money or the liability to
pay any money, shall, in the absence of an express agreement to the
contrary which is not rendered invalid or unlawful by any other written
law, be held to be made, executed, entered into, done, and had in Sri
Lanka according to the Sri Lanka rupee.
(2) In any case where any such obligation which is by
agreement expressed in any monetary unit other than the Sri Lanka rupee
has, by reason that such agreement is rendered invalid or unlawful by
any other written law, to be executed or liquidated in Sri Lanka rupees,
the necessary conversions shall be effected on the basis of the legal
parties ruling at the time when such obligation falls to be executed or
liquidated, or at such other time as may be specified in that behalf in the
agreement.

The use
of the rupee.

Cap 422]

MONETARY LAW

(7th Rev.)

CHAPTER II
ESTABLISHMENT OF THE CENTRAL BANK TO
ADMINISTER AND REGULATE THE MONETARY SYSTEM
PART I THE CENTRAL BANK, ITS POWERS AND PURPOSES
Establishment
and objectives
of Central
Bank.
[.2, 32 of
2002]

5. An institution, which shall be called and known as the Central


Bank of Sri Lanka (hereinafter referred to as the Central Bank) is
hereby established as the authority responsible for the administration,
supervision and regulation of the monetary, financial and payments
system of Sri Lanka, and without prejudice to the other provisions of this
Act, the Central Bank is hereby charged with the duty of securing, so far
as possible by action authorised by this Act, the following objectives,
namely
(a) economic and price stability; and
(b) financial system stability,
with a view to encouraging and promoting the development of the
productive resources of Sri Lanka.

Powers of the
Central Bank
and the
Monetary
Board in
relation to
section 69A of
the Inland
Revenue Act
No. 4 of 1963.
[.56, 18 of
1965]

5A. (1) For the purposes of section 69A of the Inland Revenue
Act, No. 4 of 1963, the Central Bank may open, maintain and manage
special deposit accounts.

Capital of
Central Bank.

6. The capital of the Central Bank shall be fifteen million rupees,


which sum is hereby appropriated to the bank from the surplus assets of
the Board of Commissioners of Currency.

Place of
business.

7. The Central Bank shall have its principal place of business in


Colombo, and may have such branches, agencies, and correspondents in
other places in Sri Lanka or abroad, as may be necessary for the proper
conduct of the business of the bank.

(2) Where an institution is approved by the Minister in charge


of the subject of Finance by Order made under paragraph (b) of
subsection (2) of section 69A of the Inland Revenue Act, No. 4 of 1963,
the Monetary Board may determine the terms and conditions subject to
which that institution may open, maintain and manage special deposit
accounts for the purposes of that section.

PART II THE MONETARY BOARD


Constitution of
Monetary
Board.
[.3, 32 of
2002]

8. (1) The Monetary Board of the Central Bank shall, in addition


to determining the policies or measures authorised to be adopted or taken
under this Act, be vested with the powers, duties and functions of the

(7th Rev.)

MONETARY LAW

[Cap 422

Central Bank under this Act, and be generally responsible for the
management, operations and administration of the Bank:
Provided, however, where the Monetary Board considers it
appropriate, it may delegate to the Governor, or to any officer of the
Central Bank or to a Committee of such officers, any power, duty or
function conferred or imposed on, or assigned to, the Board by Section
10(a), (b), (bb), (d) and section 27.
(1A) Where any power, duty or function is delegated by the
Monetary Board under subsection (1), the person or the group of persons
to whom such power, duty or function is delegated shall exercise perform
or discharge such power, duty or function, in accordance with such
general or special directions or guidelines as may be issued by the
Monetary Board.

[.3, 32 of
2002]

(2) The Monetary Board shall consist of


(a) the Governor of the Central Bank who shall be the
chairman of the board;
(b) the person holding office for the time being as Secretary
to the Ministry of the Minister in charge of the subject of
Finance; and

[S3, 52 of 1985

(c)three members appointed by the President on the


recommendation of the Minister of Finance, with the
concurrence of the Constitutional Council.

[.3, 32 of
2002]

(3) In the absence of the Governor from any meeting of the


Monetary Board, the Deputy Governor designated as Senior by the board
shall act as his alternate and shall preside at the meeting and have the
right to vote thereat.
(4) In the absence of the member of the Monetary Board
mentioned in paragraph (b) of subsection (2) from any meeting of the
board, the person holding office for the time being as Deputy Secretary
to the Treasury shall act as that members alternate at the meeting and
have the right to vote thereat.
9. (1) The Monetary Board of the Central Bank shall in that name
be a body corporate with perpetual succession and a common seal and
may sue or be sued in its corporate name.
(2) The Monetary Board shall have the power, in the name of
the Central Bank, to hold property, both movable and immovable, and to
sell and dispose of the same, to enter into contracts and otherwise to do
and perform all such acts or things as may be necessary for the purpose
of carrying out the principles and provisions of this Act.

Monetary
Board to be a
body corporate.

Cap 422]

MONETARY LAW

(7th Rev.)

(3) The Monetary Board may, in the name of the Central Bank,
acquire and hold such assets and incur such liabilities as result directly
from operations authorized by this Act or as are essential for the proper
conduct of such operations.
General
powers of
Monetary
Board.

10. For the purposes of the exercise of its powers, duties,


functions, and responsibilities under this Act, the Monetary Board(a) may, subject to the provisions of section 22 and section 23,
appoint such officers and servants as the board may
consider necessary and remove them from office or dismiss
them, and may fix the salaries or wages, or other
remuneration, of such officers and servants, and may
prescribe their conditions of service;
(b) may establish and regulate pensions or provident funds or
schemes for the benefit of officers and servants and their
dependants and nominees, and may make contributions to
any such fund or scheme.

[2, 7 of 1988]

(bb) may, notwithstanding the provisions of paragraph (c) of


section 117, grant loans and advances, for housing
purposes, to officers and servants of the Central Bank on
the mortgage of, or otherwise on the security of,
immovable property;
(c) may make such rules and regulations as the board may
consider necessary in relation to any matter affecting or
connected with or incidental to the exercise, discharge, or
performance of the powers, functions, and duties of the
Central Bank; and
(d) may utilize the funds of the Central Bank for the purpose
of meeting all expenditure incurred by the board in the
management, administration, and operation of the bank and
in the exercise, performance, and discharge of powers,
functions, and responsibilities of the bank under this Act.

Disqualification
for appointment
as Governor, or
as member of
the Monetary
Board.
[.4, 32 of
2002]

11. (1) A person shall be disqualified for appointment as the


Governor of the Central Bank if
(a) he is a Member of Parliament, or a member of any Provincial
Council or any local authority; or
(b) he is a public officer or judicial officer within the meaning of
the Constitution of the Democratic Socialist Republic of Sri
Lanka, or holds any office or position (other than an academic
position) either by election or appointment, for which salary or
other remuneration is payable out of public funds or the funds
of any local authority; or
(c) he is a director, officer, employee or shareholder of any
banking institution (other than the Central Bank).

(7th Rev.)

MONETARY LAW

[Cap 422

(2) A person shall be disqualified for appointment as a member of


the Monetary Board under paragraph (c) of subsection (2) of Section 8
if
(a) he is a Member of Parliament, or a member of any Provincial
Council or any local authority; or

[.4, 32 of
2002]

(b) he is a public officer or judicial officer within the meaning of


the Constitution of the Democratic Socialist Republic of Sri
Lanka, or holds any office or position (other than an academic
position) either by election or appointment, for which salary or
other remuneration is payable out of public funds or the funds
of any local authority; or
(c) he is a director, officer, employee or shareholder of any
banking institution (other than the Central Bank) or any other
institution supervised or regulated by the Central Bank.
12. (1) The Governor of the Central Bank shall be appointed by
the President on the recommendation of the Minister in charge of the
subject of Finance;
(2) The Governor shall devote his full professional time to the
business of the bank; and accordingly the Governor shall not accept or
hold any other office or employment whatsoever, whether public or
private, and whether remunerated or not:

[.4, 32 of
2002]

Appointment,
remuneration,
&c. of
Governor,
Central Bank.
[.5, 52 of
1985]

Provided, however, that nothing in the preceding provisions of this


subsection shall be deemed to prevent the Governor from accepting or
holding any academic office or position or any office or position in an
institution or organisation, established for the purpose of carrying on
research in the subjects of economics, money, banking, statistics and
finance, or from being appointed to be or acting as a member of any
commission constituted under the Commissions of Inquiry Act for the
purposes of any inquiry relating to monetary, banking, financial or
general economic matters or questions affecting the national welfare of
Sri Lanka, or of any council, committee, or other body investigating or
examining, or advising upon, any such matters or questions.

[.5, 52 of
1985]

(3) The Governor shall receive such salary as may be fixed by


the President on the recommendation of the Minister in charge of the
subject of Finance.

[.5, 52 of
1985]

13. (1) The term of office of the Governor, and of any person
appointed under paragraph (c) of subsection (2) of Section 8 (hereinafter
referred to as an appointed member) shall, subject to the provisions of
subsection (2) of this section, be the period of six years commencing on
the date of his appointment:

Term of office
of Governor
and appointed
member.
[.5, 32 of
2002]

Provided, however, that the term of office of the first appointed


member holding office under this Act shall be the period of three years
from the date of his appointment.

Cap 422]

[.5, 32 of
2002]

MONETARY LAW

(7th Rev.)

(2) In the event of the vacation of office by the Governor or by an


appointed member before the expiration of his term of office, another
person shall be appointed in his place to hold office during the unexpired
part of the term of office of the Governor or member so vacating office.
(3) Any person vacating office as Governor or as appointed
member by effluxion of time shall be eligible for reappointment.

Remuneration
of appointed
member.
[.6, 32 of
2002]

14. (1) An appointed member shall receive an allowance for each


day on which he attends a meeting of the Monetary Board.

[.5, 37 of
1974]

(2) The amount of such allowance shall be fixed by the Minister


in charge of the subject of Finance in consultation with the President.

Alternate for
appointed
member.
[.7, 32 of
2002]

15. (1) Where an appointed member is, through illness, absence


from Sri Lanka, or for any other reason, temporarily unable to perform
the functions of his office, the President may, on the recommendation of
the Minister in charge of the subject of Finance, appoint some other
person to act in his place for such period as may be specified by the
President.
(2) The provisions of section 11 shall apply in relation to any
such appointment.

[.7, 32 of
2002]

(3) The person appointed to act as a member of the board under


this section shall during the period of his appointment be deemed for the
purposes of this Act to be an appointed member.

Removal from
office of
Governor or
appointed
member.
[.8, 32 of
2002]

16. The President may, on the recommendation of the Minister in


charge of the subject of Finance, remove the Governor or an appointed
member from office
(a) if he becomes subject to any disqualification mentioned in
section 11; or
(b) if he becomes permanently incapable of performing his
duties; or
(c) if he has done any act or thing which, in the opinion of the
President is of a fraudulent or illegal character or is
manifestly opposed to the objects and interests of the Central
Bank; or
(d) in the case of the Governor, if he acts in contravention of
subsection (2) of section 12.

Meetings of
Monetary
Board.
[.6, 37 of
1974]

17. (1) Meetings of the Monetary Board shall be held at least once
in every two weeks and, in addition, as frequently as is necessary for the
purpose of the discharge of its responsibilities under this Act.

(7th Rev.)

MONETARY LAW

[Cap 422

(2) Meetings of the board shall be convened by the Governor.


(3) At any meeting of the board, three members shall constitute a
quorum.

[.9, 32 of
2002]

(4) No decision taken at any meeting of the board shall be deemed


to be a decision of the board unless it has the concurrence of at least
three members, or, in any case where any other provision of this Act
requires a unanimous decision, the concurrence of all five members.

[.9, 32 of
2002]

18. The Deputy Governor designated as senior by the Monetary


Board and the Director of Economic Research may attend meetings of
the Monetary Board, but shall not have the right to vote on any question.

Attendance of
certain officers
at meetings of
Monetary
Board.

PART III - THE GOVERNOR AND DEPUTY GOVERNORS


19. (1) The Governor shall be the chief executive officer of the
Central Bank and shall accordingly be charged with the following
powers, duties, and functions :

General
functions and
duties of
Goveernor.

(a) the execution of policies and measures approved by the


Monetary Board and, subject to any such policies and measures
as may be applicable, the direction, supervision, and control of
the operation of the Central Bank and its internal management
and administration;
(b) the preparation or the agenda for meetings or the Monetary
Board and the submissions for the consideration of the board of
policies and measures considered by him to be necessary for
the purpose of carrying out the principles and provisions of this
Act; and
(c) the exercise or performance of such other powers or duties as
may be conferred of imposed upon him by the Monetary
Board.
(2) Every instrument of the following description, that is to say,
every contract, promissory note, security, report, balance sheet, statement,
or other document and every rule, regulation, order, direction, notice, or
requirement which bears the signature of the Governor or such other
officer as may be authorized in that behalf by the Monetary Board, shall
be deemed for all purposes to be an instrument executed, made, or issued
by the Central Bank or by the Monetary Board, as the case may be.
20. The Governor of the Central Bank shall be the principal
representative of the bank and of the Monetary Board and shall in that
capacity, but in accordance with policies or rules approved or made by
the board, have authority.-

Governor to be
principal
representative
of Central Bank
and Monetary
Board.

10

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MONETARY LAW

(7th Rev.)

(a) to represent the Central Bank and the board in all relations
with other persons, including the Government and any body of
persons, corporate or unincorporate, whether public or private,
domestic, foreign, or international; and
(b) to represent the Central Bank and the board in any legal
proceedings either personally or through an attorney-at-law.
Delegation of
powers of
Governor.

21. Subject to and in accordance with such rules, if any, as may be


made by the Monetary Board in that behalf, the Governor may delegate
to any other officer of the bank his authority to represent the bank for
any purpose mentioned in section 20, so however that the Governor shall
remain and continue to be responsible to the board for and in respect of
any act or thing done or omitted to be done by any such delegate.

Appointment of
Deputy
Governor.

22. The Monetary Board shall, with the concurrence of the


Minister in charge of the subject of Finance appoint one or more Deputy
Governors who shall perform such duties and exercise such powers as
may be assigned to them by the board.

Disqualification
and removal of
Deputy
Governor.

23. (1) A person shall be disqualified for appointment as a Deputy


Governor if
(a) he is a Member of Parliament, or a member of any local
authority; or
(b) he is a public officer or judicial officer within the meaning of
the Constitution of the Democratic Socialist Republic of Sri
Lanka, or holds any office or position (other than an academic
position) either by election or appointment, for which salary or
other remuneration is payable out of public funds or the funds
of any local authority; or
(c) he is a director, officer, employee or shareholder of any
banking institution (other than the Central Bank).

[S.3,7 of 1988]

Nothing in paragraph (b) or (c) shall be held to disqualify an


officer or servant of the Central Bank who has been temporarily released
to serve in any office or position for which salary or remuneration is
payable out of public funds or who is a director of any banking
institution which is a public corporation, for appointment as a Deputy
Governor.
(2) The Monetary Board may, with the concurrence of the
Minister in charge of the subject of Finance, remove any Deputy
Governor from office
(a) if he becomes subject to any disqualification mentioned
in subsection (1); or

(7th Rev.)

MONETARY LAW

[Cap 422

11

(b) if he becomes permanently incapable of performing his


duties; or
(c) if he has done any act or thing which, in the opinion of
the board, is of a fraudulent or illegal character or is
manifestly opposed to the objects and interest of the
Central Bank; or
(d) if, in the opinion of the board, he has failed to carry out
his duties:

[.3, 7 of 1988]

Provided that nothing in this subsection shall be held to empower


the Monetary Board. with the concurrence of the Minister, to remove
from office, any Deputy Governor who has been temporarily released,
under subsection (3) to serve in any office or position for which salary or
other remuneration is payable out of public funds or to serve with a
banking institution which is a public corporation, as a Director of that
banking institution by reason only of the fact that such Deputy Governor
holds such office or position or is such Director.

[.3, 7 of 1988]

(3) The Monetary Board may, with the concurrence of the


Minister, temporarily release a Deputy Governor to

[.3, 7 of 1988]

(a) serve in an office or position for which a salary or other


remuneration is payable out of public funds;
(b) serve with a banking institution, which is a public
corporation, as a Director of that banking institution,
on such terms as may be determined by the Monetary Board, with like
concurrence.
For the purpose of this section, public corporation shall have the
same meaning as in Article 170 of the Constitution.
24. In the event of the temporary absence from duty of the
Governor or of the temporary inability of the Governor to perform his
functions and duties, the Deputy Governor designated as senior by the
board shall act as the chief executive officer of the Central Bank and
shall have authority to execute the powers and perform the functions and
duties of the Governor under this Act.
24A. (1) A Deputy Governor may require any person
(a) to furnish him or to any officer or servant of the Central
Bank designated by him within such time and in such
manner as he may specify, such information as he may

Deputy
Governor to
act as
Governor.

Authority of
Deputy
Governor to
obtain
information.
[.6,52 of 1985]

12

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MONETARY LAW

(7th Rev.)

consider necessary to obtain for the purpose of the proper


discharge of the functions and responsibilities of the
Central Bank; or
(b) to produce for inspection to him or to any officer or
servant of the Central Bank, designated by him within
such time and in such manner as he may specify, any
books or records in the possession of such person
containing or likely to contain any such information as is
referred to in paragraph (a) of this subsection.
(2) Any person who, without reasonable cause, fails or refuses
to comply with any requirement under subsection (1), shall be guilty of
an offence.
(3) In this section person includes any officer of any
department of Government and any body of persons, corporate or
unincorporate, whether established or constituted under any written law or
otherwise.

PART IV - DEPARTMENTS OF THE CENTRAL BANK


(A) - The Department of Economic Research
Establishment
and functions
of department
of economic
research.

25. (1) The Central Bank shall establish and maintain a department
of economic research which shall prepare data and conduct economic
research, for the guidance of the Monetary Board and the Governor in
formulating, implementing, and executing policies and measures and for
the information of the public, in the subjects of money and banking and
other economic subjects of general interest.
(2) The head of the department established under subsection (1)
shall be called the Director of Economic Research.

Authority to
obtain
information.

26. (1) The Director of Economic Research or any officer of the


department of economic research authorised for the purpose by the
Director may in such manner as may be prescribed by rules made under
section 10
(a) require any person to furnish to him such information as
he may consider it necessary to obtain for the purposes
of the proper discharge of the functions and
responsibilities of the Central bank; or
(b) require any person to produce for inspection any books
or records in his possession containing or likely to
contain any such information.

(7th Rev.)

MONETARY LAW

[Cap 422

13

(2) Any person who without reasonable cause fails or refuses to


comply with any requirements made under subsection (1) shall be guilty
of an offence.
(3) In this section person includes any officer of any
department of Government, and any body of persons, corporate or
unincorporate, whether established or constituted under any written law or
otherwise.
27. The Central Bank shall promote and sponsor the training of
technical personnel on the subjects of money, banking, statistics, finance,
and other economic subjects, and for this purpose, the Central Bank is
hereby authorized to defray the costs of study, in Sri Lanka or abroad, of
employees of the bank who are of proved merit, or of any other qualified
persons selected by the Monetary Board.

Training of
technical
personnel.

(B) - The Department of Bank Supervision


28. (1) For the purposes of the continuous supervision and
periodical examination of all banking institutions in Sri Lanka, the
Central Bank shall establish and maintain a department of bank
supervision.

Establishment
and functions
of department
of bank
supervision.

(2) The head of the department established under subsection (1)


shall be called the Director of Bank Supervision
29. (1) The Director of Bank Supervision shall examine, or cause
an examiner of his department to examine, the books and accounts of
every commercial bank in Sri Lanka at least once in each examination
period, and shall make such further examinations in respect of any
specified bank whenever required so to do by the Governor.
(2) Examination of books and accounts of banking institutions
other than commercial banks, or of any specified banking institution,
shall be made if directions in that behalf are given by the Monetary
Board.
(3) A report on the results of each examination under this
section shall be furnished by the Director of Bank Supervision to the
Governor.
(4) It shall be lawful for the Director of Bank Supervision or for
any examiner of his department
(a) to administer oaths or affirmations, in accordance with
the Oaths Ordinance, to any director, officer, or employee
of any banking institution;
(b) to require any such director, officer, or employee to
furnish such information as the Director or examiner may
consider it necessary to obtain for the purpose of
enabling the true condition of the affairs of the institution
to be ascertained; or

Examination of
banking
institutions.

14

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MONETARY LAW

(7th Rev.)

(c) to require any such director, officer, or employee to


produce for inspection any books, records, or other
documents in his possession containing or likely to
contain any such information.
(5) It shall be the duty of every director, officer or employee of
any banking institution to afford to the Director of Bank Supervision or
to any examiner of his department full opportunity to examine books and
records and its cash, available assets, full liabilities and general condition,
whenever so requested by the Director.
(6) In this section examination period means each period of
such duration as may be fixed for the purpose by the Monetary Board.
Continuous
supervision of
banking
institutions.
[.7, 52 of
1985]

29A. The Director of Bank Supervision may for the purpose of the
continuous supervision of banking institutions
(a) require any commercial bank, and if so authorized by the
Monetary Board any banking institution other than a
commercial bank, to furnish from time to time and within
such period as may be specified by him, such statement
and information relating to the business or affairs of a
commercial bank or a banking institution, as the case
may be, as he may consider necessary to obtain for the
purpose of ascertaining the true condition of the affairs of
the commercial bank or the banking institution;
(b) require the auditor of any commercial bank, and if so
authorized by the Monetary Board of any Banking
Institution other than a commercial bank, furnish to him
within such period as may be specified by him, any
information in relation to an audit carried out by such
auditor of the commercial bank or banking institution, as
the case may be, as he may consider necessary to obtain
for the purpose referred to in paragraph (a); and
(c) to examine or cause an examiner of his department to
examine the books and accounts kept by any commercial
bank, or other banking institution as he may deem
necessary for the purpose of verifying the accuracy of
any statement or information so furnished.

Director of
Bank
Supervision to
examine books
of any
subsidiary or
agency of a
banking

29B. (1) The Director of Bank Supervision shall examine or cause


an examiner of his department to examine the books and accounts of any
subsidiary or agency of any commercial bank, or the books and accounts
of any subsidiary or agency of any banking institution other than a
commercial bank, if directions in that behalf are given by the Monetary
Board or the books and accounts of any society registered under the

(7th Rev.)

MONETARY LAW

[Cap 422

Co-operative Societies Law, No. 5 of 1972, which carried on banking


business, if direction in that behalf are given by the Governor.
(2) The provisions of subsections (3), (4) and (5) of section 29
and sections 30, 31 and 32 of this Act shall, mutatis mutandis apply, to
and in relation to, all or any of the institutions referred to in subsection
(1) of this section.
30. (1) In any case where the Director of Bank Supervision is
satisfied, after examination by himself or any examiner of the affairs of
any banking institution, or upon information received from the institution,
that the institution is insolvent or is likely to become unable to meet the
demands of its depositors, or that its continuance in business is likely to
involve loss to its depositors or creditors, the Director shall make a report
accordingly to the Governor for submission to the Monetary Board; and
if the board, upon review of the facts and circumstances, is of opinion
that action should be taken as hereinafter provided, the board may make
order directing the institution forthwith to suspend business in Sri Lanka
and directing the Director to take charge of all books, records and assets
of the institution and to take such measures as may be necessary to
prevent the continuance of business by the institution.

institution or of
a Co-operative
Society
carrying on
banking
business.
[.7, 52 of
1985]

Power of
Monetary
Board to
suspend or
restrict
business of a
banking
institution.

(2) Notwithstanding anything in any written or other law, no


action or proceeding may be instituted in any court for the purpose of
securing the review or revocation of any order made under subsection (1)
or in respect of any loss or damage incurred, or likely to be or alleged to
be incurred, by reason of such order.
(3) An order made by the Monetary Board under subsection (1)
in respect of any banking institution shall cease to have effect upon the
expiration of a period of six months from the date on which it is made;
and it shall be the duty of the board, as soon as practicable and in any
event before expiration of the said period

15

[.8, 52 of
1985]

(a) to make order permitting the institution to resume


business, either unconditionally or subject to such
conditions as the board may consider necessary in the
public interest or in the interests of the depositors and
other creditors of the institution; or
(b) to cause the Director of Bank Supervision to make
application to the competent court under such written law
as may be applicable in that behalf for the winding up of
the institution; or

[.8, 52 of
1985]

(c) to cause the Director of Bank Supervision to make


application to the competent court, to wind up the affairs
of a branch of an institution, incorporated outside Sri
Lanka.

[.8, 52 of
1985]

16

Cap 422]

MONETARY LAW

(7th Rev.)

(4) Where an order has been made by the Monetary Board


under subsection (3) permitting the resumption of business by any
banking institution subject to such conditions as may be specified in the
order, the competent court may, on application made to it in that behalf
by the banking institution at any time while the order is in force, make a
declaration permitting the institution to resume business unconditionally,
or varying or altering, in such manner as the court may determine, any or
all of the conditions specified by the board; and any such declaration
shall have effect notwithstanding anything in the order made by the board
under subsection (3).
The Director of Bank Supervision shall be named respondent to
any such application and shall be entitled on behalf of the board to be
heard and to adduce evidence at the hearing thereof.
(5) In any case where application is made by the Director as
provided in subsection (3) for the winding up of any banking institution(a) the institution shall not carry on business during the
pendency of the application unless it is authorized so to
do by the court and except in accordance with such
conditions, if any, as may be specified by the court; and
(b) the court, if it is of opinion after such inquiry as it may
consider necessary, that the institution is not insolvent,
may make a declaration permitting the institution to
resume business either unconditionally or subject to such
conditions as the court may consider necessary in the
public interest or in the interest of the depositors and
other creditors of the institution.
(6) Every order made by a competent court under this section
shall be subject to an appeal to the Court of Appeal and the provisions of
the Civil Procedure Code relating to appeals in civil actions shall apply
mutatis mutandis in the case of any such appeal:
Provided that an order under paragraph (a) of subsection (5) shall
be final and shall not be subject to appeal.
(7) Every application to a competent court under this section
shall be deemed to be an action of the value of five thousand rupees.
(8) In this section, competent court, in relation to any banking
institution, means the District Court of Colombo or of the district in
which the principal office in Sri Lanka of the institution is maintained.
[.8, 52 of
1985]

(9) Where the business of a banking institution has been


suspended under subsection (1), the Director of Bank Supervision may

(7th Rev.)

MONETARY LAW

[Cap 422

(a) require such banking institution to forthwith take any


action or to do any act or thing which the Monetary
Board may consider necessary for carrying on the
business of such bank;
(b) appoint a fit and proper person to advise such banking
institution with regard to the proper conduct of the
business of such banking institution;
(c) assume control of, and carry on the business of such
banking institution or delegate to another person, the
carrying on of business of the banking institution;
(d) reorganize, such banking institution by increasing its
capital and arranging for new shareholders and by the
reconstitution of its board of directors; and
(e) make such arrangements as are necessary for the
amalgamation of such banking institution with any other
banking institution, that consents to such amalgamation.
(10) (a) Where an order has been made by the Monetary Board
under subsection (1) of Section 76M of the Banking Act, No.30 of 1988
(hereinafter referred to as the Banking Act) in respect of a licensed
specialised bank, the provisions of subsections (3), (4), (5), (6), (7), (8)
and (9) of this Section shall, notwithstanding subsections (3) and (4), of
Section 76M of the Banking Act and subject to paragraph (ii) of this
subsection, apply, mutatis mutandis, to such bank as if it were a banking
institution.
(b)Where under paragraph (i) of this subsection, the
application of the provisions of subsection (3) of this
section requires (i) the winding up of a licensed specialised bank, the
Monetary Board shall cancel the licence issued to
such bank under Part IXA of the Banking Act and,
the provisions of Part VIII of that Act shall apply to
such winding up as if it were a compulsory winding
up of the bank, in the case of a bank incorporated or
established within Sri Lanka or a compulsory
winding up of the affairs or closure of the business
of the bank, in the case of a bank incorporated
outside Sri Lanka;
(ii) the resumption of business of a licensed specialised
bank, the Monetary Board may exercise the powers
conferred on it under Section 76N of the Banking
Act.
(c)In this subsection licensed specialised bank shall have
the same meaning as in the Banking Act.

[.10, 32 of
2002]

17

18

Cap 422]

Winding up of a
banking
institution.
[.11, 32 of
2002]

MONETARY LAW

(7th Rev.)

31. Where an order is made by the Monetary Board under section


30 requiring the winding up of a banking institution
(a) in the case of a commercial bank, the Monetary Board shall
cancel the licence issued to it under the Banking Act and the
provisions of Part VIII of that Act shall apply as if it were a
compulsory winding up of the bank, in the case of a bank
incorporated or established within Sri Lanka or a compulsory
winding up of the affairs or closure of the business of the bank,
in the case of a bank incorporated outside Sri Lanka;
(b) in the case of any other banking institution, not being a
licensed specialised bank to which subsection (10) of section 30
is applicable, the Director of Bank Supervision shall nominate a
person to be the liquidator for the purpose of winding up and
subject to such nomination, such institution shall be wound up
in accordance with the law applicable to such institution.

Offences in
regard to
information and
examinations.

32. (1) Any owner, agent, director, officer, or employee of any


banking institution, who fails to furnish any information or to produce
any book, record, or other document when required so to do by the
Director of Bank Supervision or any examiner under the preceding
provisions of this Part or who obstructs or fails to permit the Director or
any examiner to make any examination authorized to be made under any
such provision, shall be guilty of an offence.
(2) Any person who in any report or information furnished to
the Director of Bank Supervision, or to any examiner, makes any
statement which he knows to be false shall be guilty of an offence.

Scheme to
insure deposits
held by
banking
institutions and
co-operative
societies.
[.7, 37 of
1974]

32A. The Central Bank may establish, maintain, manage and


control, as determined by the Monetary Board from time to time, a
scheme for the insurance of deposits held by banking institution and
societies registered under the Co-operative Societies Law, No, 5 of 1972.

Insurance of
deposits held
by banking
institutions or
societies.
[.7, 37 of
1974]

32B. (1) Any banking institution, or any society registered under


the Co-operative Societies Law, No. 5 of 1972, and carrying on banking
business of any kind, may, as prescribed , apply to the Central Bank to
insure deposits held by such institution or society.
(2) The Central Bank may, in its discretion, accept any
application made under subsection (1).
(3) Every banking institution or society, whose application has
been accepted under subsection (2), is hereafter in this Part of this Act
referred to as insured bank or insured society, as the case may be.

(7th Rev.)

MONETARY LAW

[Cap 422

32C. (1) Every insured bank or insured society shall be liable to


pay a premium to the Central Bank on its deposits on such basis as may
be determined by the Monetary Board from time to time, with the
approval of the Minister in charge of the subject of Finance.

19

Premiums
payable on
deposits.
[.7, 37 of
1974]

Provided that the premium payable by any insured bank or insured


society for any period shall not exceed fifteen cents per annum for every
hundred rupees of the total amount of the deposits in that bank or that
society.
(2) The premium shall be payable for such periods, at such
times and in such manner as may be determined by the Monetary Board.
(3) If an insured bank or insured society makes any default in
the payments of any premium, it shall, for the period of such default, be
liable to pay to the Central Bank, interest on the amount of such
premium at such rate as may be determined by the Monetary Board.
32D. (1) The Director of Bank Supervision may, at his discretion,
examine, or cause an examiner of his department to examine, the books
and accounts of any insured bank or insured society.
(2) The provisions of subsections (4) and (5) of section 29,
paragraph (b) of section 29A, section 30, section 31 and section 32 of
this Act shall, mutatis mutandis, apply to insured banks and insure
societies.
32E. Regulations may be made by the Monetary Board in respect
of
(a) the periods for which, the times at which and the manner
in which premiums will be calculated and may be paid
by an insured bank or an insured society.
(b) the interest which may be charged from an insured bank
or an insured society where it makes default in the
payment of premiums;
(c) any matter that is stated or is required to be prescribed or
in respect of which a regulation is authorized to be made
under this Part of this Act;
(d) any other matter affecting, connected with, or incidental
to, the exercise, discharge, or performance of the powers,
functions and duties of the Central Bank under this Part
of this Act.

Examination of
insured banks
and insured
societies, &c.
[.7, 37 of
1974]
[.9, 52 of
1985]

Regulations.
[.7, 37 of
1974]

20

Cap 422]

MONETARY LAW

(7th Rev.)

(C) - Other Departments


Other
departments.

33. The Monetary Board may establish and maintain such other
departments as it may consider necessary for the proper and efficient
conduct of the business of the Central Bank.

PART V - REPORTS AND PUBLICATIONS


Monthly
Statement.
[.12, 32 of
2002]

34. The Central Bank shall publish a general balance sheet


showing the volume and composition of its assets and liabilities as at the
last day of each month before the last day of the succeeding month.

Annual Report.
[.8, 37 of
1974]

35. (1) Within four months after the end of each financial year, the
Monetary Board shall submit to the Minister in charge of the subject of
Finance and shall publish an annual report on the condition of the
Central Bank and a review of the policies and measures adopted by the
Monetary Board during the financial year and an analysis of the
economic and financial circumstances which prompted those policies and
measures.
(2) The annual report shall include a statement of the financial
condition of the Central Bank, and shall present as a minimum the
following data
(a) the monthly movements of the money supply,
distinguished between currency and demand deposits;
(b) the monthly movements of purchases and sales of
exchange and of the International Reserve of the Bank;
(c) the annual balance of payments of Sri Lanka;
(d) the monthly indices of wages, of the cost of living, and
of import and export prices;
(e) the monthly movement, in summary form, of exports and
imports, by volume and value;
(f) the monthly movement of the accounts of the Central
Bank and, in consolidated form, of the commercial banks;
(g) the principal data on Government receipts and
expenditures and on the state of the public debt, both
domestic and foreign; and
(h) the texts of the major legal enactments and administrative
measures adopted by the Government and the Monetary
Board during the year which relate to the functions or
operations of the Central Bank or of banking institutions
operating in Sri Lanka.

(7th Rev.)

MONETARY LAW

[Cap 422

20A

(3) The annual report shall be laid before Parliament within


fourteen days after the receipt thereof by the Minister in charge of the
subject of Finance, if Parliament is then in session, or, if Parliament is
not in session, within fourteen days after the commencement of the next
ensuing session.
36. The balance sheet and other financial statements of the Central
Bank (including the statement of financial condition referred to in section
35 (2) shall be signed by the Governor and the Chief Accountant of the
Bank, and shall be certified by the Auditor-General.

Signatures on
balance sheets
and financial
statements.

PART VI - PROFITS, LOSSES, AND SPECIAL ACCOUNTS


37. The financial year of the Central Bank shall be the calendar

Financial year.

year.
38. Before the expiration of thirty days after the end of each
financial year, the Central Bank shall determine its net profits or losses,
and in the calculation of net profits the bank shall make adequate
allowance or establish adequate reserves for such purposes as the
Monetary Board may deem fit.

Computation of
profits and
losses.

39. Before the expiration of sixty days after the end of each
financial year, the Monetary Board shall carry out the distribution of the
net profits in accordance with the following provisions :

Distribution of
profits.

(a) Firstly all the net profits of the Central Bank shall be used to
reduce the Monetary Adjustment Account, defined in the
following section, whenever such account exists, until the
account has been completely liquidated.
(b) Secondly any net profits remaining after liquidation of the
Monetary Adjustment Account, if any, shall be carried to
surplus until such time as the total capital accounts of the bank
reach a sum equal to at least fifteen per centum of the
difference between the total assets of the bank and its assets in
gold and in foreign currencies.
(c) Thirdly any net profits remaining after compliance with the
preceding provisions shall, after consultation with Minister in
charge of the subject of Finance, either be applied in liquidation

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MONETARY LAW

[Cap 422

21

of any outstanding Government obligations to the Central Bank


or be paid and credited to the Consolidated Fund.
40. The Monetary Board may, whenever it deems it advisable,
exclude from the computation of the annual profits and losses of any
particular financial year all or any part of any extraordinary expenses of
the following description which may have been incurred during that year.

Extraordinary
expenses of
currency issue
and monetary
stabilization.

(a) the costs of any extraordinary coin or note issue;


(b) expenditures incurred in the issue and placing of, and the
payment of interest on, the securities to which reference is
made in section 91;
(c) interest paid on bank reserves in accordance with section 95.
The amount so excluded from the computation of profits and
losses shall be entered in a suspense account which shall be called the
Monetary Adjustment Account". The expenses charged to such account
shall in every case be amortized not later than five years after they are so
charged.
41. (1) Profits or losses arising from any revaluation of the Central
Bank's net asset or liabilities in gold or foreign currencies as a result of
changes in the par value of the Sri Lanka rupee or of changes in the
parities or exchange rates of foreign currencies with respect to the Sri
Lanka rupee, or profits or losses assumed by the Central Bank in
accordance with the provisions of section 79, shall not be included in the
computation of the annual profits and losses of the Central Bank.

Revaluation
profits and
losses.

(2) All such profits or losses shall be carried in a special


account, which shall be named "International Reserve Revaluation
Account, and the net balance of which shall appear either among the
liabilities or among the assets of the Central Bank, according as the
revaluations have produced net profits or net losses.
(3) The International Reserve Revaluation Account shall be neither
credited nor debited for any purposes other than those specifically
mentioned in this section.

PART VII - AUDIT


42. (1) The accounts of the Central Bank shall be audited by the
Auditor-General and the cost of audit shall be paid by the bank.
(2) The Auditor-General shall submit an annual report on the
accounts of the Central Bank to the Minister in charge of the subject of
Finance who shall lay such report before Parliament.

Audit.

22

Cap 422]

Powers and
functions.

MONETARY LAW

(7th Rev.)

43. (1) The Auditor-General and any officer of his department


authorized by him in that behalf shall at all times have the right of
access to, and examination of, the accounts of the Central Bank and of
all books and documents containing information with respect to matters
connected with such accounts.
(2) The Auditor-General shall at such intervals as may be fixed
by the Minister in charge of the subject of Finance furnish to him reports
setting out the results of the examination of the accounts of the Central
Bank.

PART VIII - RESTRICTIONS RELATING TO CENTRAL BANK OFFICERS


AND SERVANTS
Duty to
maintain
secrecy.
[.8, 37 of
1974]
[.10, 52 of
1985]

*45. (1) Except in the performance of his duties under this Act,
every officer and servant of the Central Bank shall preserve and aid in
preserving secrecy with regard to all matters relating to the affairs of any
banking institution or of any client of any such institution or of any
matter relating to the affairs of any department of Government,
corporation, company, partnership or person that may come to his
knowledge in the performance of his duties under this Act, the Control of
Finance Companies Act, No. 27 of 1979, or any other law for the time
being in force, and any such officer or servant who communicates any
such matter to any person, other than the Monetary Board or an officer
of the Central Bank authorized in that behalf by the Governor, or suffers
or permits any unauthorized person to have access to any books, papers
or other records relating to any banking institution, department of
Government, corporation, company, partnership or person, shall be guilty
of an offence.
(2) No officer or servant of the Central Bank shall be required
to produce in any court any book or document or to divulge or
communicate to any court any matter or thing coming under his notice in
the performance of his duties under this Act, except as may be necessary
for the purpose of carrying into effect the provisions of this Act.
(3) Where, in any legal proceedings, a certified copy of any
book or document of the Central Bank or of any entry in such book or
document is produced, such certified copy shall be received as prima
facie evidence of the existence of such book, document or entry, as the
case may be, and shall be admitted as evidence of the matters,
transactions or accounts therein recorded in every case where, and to the
same extent as, the original book, document or entry is now by law
admissible, but not further or otherwise.
In this subsection, certified copy" in relation to any book,
document or entry, means a copy of such book, document or entry,
together with a certificate written at the foot of such copy that it is a true
* Section 44 is repealed by Act No. 62 of 1980

(7th Rev.)

MONETARY LAW

[Cap 422

23

copy of such book, document or entry; that such book or document is


still in the custody of the Central Bank; that such entry is contained in
one of the ordinary books of the Central Bank, and was made in the
usual and ordinary course of business, such certificate being dated and
subscribed with his name and official title, by such officer as may be
authorised for the purpose by the Governor of the Central Bank.
46. Any member of the Monetary Board or any officer or auditor
of the Central Bank who certifies or verifies any statement, account, or
list required to be furnished to the Minister in charge of the subject of
Finance in pursuance of this Act, knowing the same to be false in any
material particular, shall be guilty of an offence.

Liability for
false
statements in
Central Bank
accounts, &c.

47. (1 ) No member of the Monetary Board or officer or servant


of the Central Bank shall be liable for any damage or loss suffered by
the bank unless such damage or loss was caused by his misconduct or
wilful default.

Protection for
acts done in
good faith, &c.

(2) Every member of the Monetary Board and every officer or


servant of the Central Bank shall be indemnified by the bank from all
losses and expenses incurred by him in or about the discharge of his
duties, other than such losses and expenses as the board may deem to
have been occasioned by his misconduct or wilful default.

24

Cap 422]

MONETARY LAW

(7th Rev.)

CHAPTER III
THE CENTRAL BANK AND THE MEANS OF PAYMENT
PART I - ISSUE OF MEANS OF PAYMENT
(A) Currency
Definition of
currency.
[.11, 52 of
1985]

Issue power..

Prohibition
against issue of
notes by any
person other
than Central
Bank.

48. For the purpose of this Act unless the context otherwise
requires, "currency" means all currency notes and coins issued or
circulating in accordance with the provisions of this Act.
49. The Central Bank shall have the sole right and authority to
issue currency in Sri Lanka.
50. (1 ) No person other than the Central Bank shall draw, accept
make, or issue any bill of exchange, promissory note, or engagement for
the payment of money payable to bearer on demand, or borrow, owe, or
take up any sum or sums of money on the bills or notes payable to
bearer on demand of any such person:
Provided that cheques or drafts payable to bearer on demand may
be drawn on commercial banks or agents by their customers or
constituents in respect of moneys in the hands of such banks or agents
held by them at the disposal of the person drawing such cheques or
drafts.
(2) Every person who contravenes any provision of this section
shall be guilty of an offence.

Liability for
notes and
coins.

51. Currency notes and coins issued by the Central Bank shall be
liabilities of the bank. The bank's holdings of its own notes and coins
shall not be considered as part of its currency issue and, accordingly,
shall not be taken into account in determining the assets or liabilities of
the bank.

Currency to be
legal tender.

52. All currency notes and coins issued by the Central Bank shall
be legal tender in Sri Lanka for the payment of any amount.

Issue of
commemorative
currency notes
or coins.
[2,6 of 1998]

*52A. (1) (a) The Central Bank may, with the aproval of the
Minister in charge of the subject of Finance and subject to section 53,
issue commemorative currency notes or coins.
(b) Commemorative currency notes or coins issued under
paragraph (a) of this subsection may be sold at a price
higher than the denomination specified in such note or
coin and as may be determined by the Minister in charge
of the subject of Finance.
* This section is deemed to have come into effect from February 4, 1998. See section 4, Act 6 of
1998.

(7th Rev.)

MONETARY LAW

[Cap 422

25

(2) The sale of a commemorative currency note or coin issued


under subsection (1) at a price higher than the denomination specified in
such currency note or coin shall be deemed not to be a contravention of
section 58A.
(3) In this section commemorative currency note or coin means
a currency note or coin isuued to commemorate any person or a special
event.
53. (1) The Monetary Board shall, with the approval of the
Minister in charge of the subject of Finance, prescribe the denominations,
dimensions, designs, inscriptions, and other characteristics of currency
notes issued by the Central Bank.

Characteristics
of currency.

(2) Every currency note shall bear the signatures in facsimile of


the Minister in charge of the subject of Finance and of the Governor of
the Central Bank and shall be stated on the face thereof to be issued on
behalf of the Government of Sri Lanka.
(3) The Monetary Board shall, with the approval of the Minister
in charge of the subject of Finance, prescribe the metals, fineness, weight,
size, designs, denominations, and other characteristics of the coins issued
by the Central Bank.
54. The Central Bank shall have the authority to enter into
contracts with other persons in Sri Lanka or abroad for the printing of
currency notes and the minting of coins.

Contracts for
printing of
notes and
minting of
coins.

*55. (1) Subject to the provisions of subsection (2) upon surrender


by any person to the Central Bank of any Sri Lanka currency, the bank
shall deliver to that person in exchange, on demand and without charge,
Sri Lanka coins and currency notes of equivalent value in such
denominations as may be required by that person:

Exchange of
currency.
[3, 6 of 1998]

Provided that if the bank is temporarily unable to deliver currency


notes or coins of any required denomination, the bank shall be deemed to
comply with its obligation if it delivers notes or coins of the next higher
or next lower available denomination.
(2) Nothing in subsection (1) shall be read and construed as
imposing an obligation on the Central Bank to deliver on demand under
subsection (1), any commemorative curency note or coin issued under
section 52A, where the required currency note or coin is of a
denomination specified in such currency note or coin.

[3, 6 of 1998]

56. The Central Bank shall withdraw from circulation and shall
cancel all currency notes and coins which for any reason whatsoever are

Replacement of
currency unfit
for circulation.

* The amendments made to this section should be deemed to have come into effect from February 4,
1998. section 4, Act 6 of 1998.

26

Cap 422]

MONETARY LAW

(7th Rev.)

unfit for circulation, and shall, as soon as practicable and subject to such
rules and regulations as may be made in that behalf by the Monetary
Board with the approval of the Minister in charge of the subject of
Finance, replace them by the delivery in exchange of fit notes and coins.
Retirement of
old notes and
coins.

57. (1) The Monetary Board may in its discretion, by notice


published in the Gazette call in for replacement currency notes or coins
of any issue or denomination.
(2) Notes and coins called in for replacement in accordance with
this section shall remain legal tender for such period not exceeding one
year from the date of call as may be prescribed by the Monetary Board
and shall thereafter cease to be legal tender.
(3) During the period of five years succeeding the date of call,
or such longer period as the Monetary Board may determine, the Central
Bank or any agent authorised by the board for the purpose, shall, upon
surrender of any currency notes or coins so called in for replacement,
replace such notes or coins, at par and without charge, by the delivery in
exchange of fit notes or coins.
(4) All currency notes and coins called in for replacement and
not surrendered as provided in subsection (3) shall cease to be a liability
of the Central Bank and the bearer of any such notes or coins shall not
be entitled to any compensation.

Mutilation of
defacement of
currency notes.

58. Any person who without the authority of the Monetary Board

[.12, 52 of
1985]

(a) cuts, perforates, or in any other way whatsoever mutilates


any currency note;

[.12, 52 of
1985]

(b) prints, stamps, or draws anything upon any currency


note, or affixes any seal or stamp to or upon any
currency note;

[.12, 52 of
1985]

(c) attaches or affixes to or upon any currency note anything


in the nature or form of an advertisement; or

[.12, 52 of
1985]

(d) reproduces in any form whatsoever, or makes a facsimile


of, any currency note,
shall be guilty of an offence.

Use of currency
coin otherwise
than aslegal
tender.
[ 2, 14 of
1979]

58A. (1) Any person who, without the authority of the Monetary
Board, melts, breaks up, perforates, mutilates or uses otherwise than as
legal tender, any coin which is legal tender in Sri Lanka shall be guilty
of an offence.

(7th Rev.)

MONETARY LAW

[Cap 422

27

(2) Any person who knowingly uses, possesses or deals with


any metal or article which he knows or has reasonable cause to believe,
is derived from any coin which has been dealt with in contravention of
subsection (1), shall be guilty of an offence.
59. (1) Where in any proceedings in any court it has to be
determined whether a document purporting to be a currency note is an
imitation of a currency note, a certificate under the hand of the Governor
of the Central Bank or, if the Governor is temporarily absent from duty
or temporarily unable to perform his functions and duties, a certificate
under the hand of the Deputy Governor for the time being acting as the
Chief Executive Officer of the Central Bank, to the effect that such
document is an imitation of a currency note and is not a currency note
issued or deemed to be issued by the Central Bank of Sri Lanka shall be
received in those proceedings as conclusive evidence of the fact that such
document is an imitation of a currency note.

Conclusive
evidence of
imitation of a
currency note.
[.2, 33 of
1954]
[S.2, 52 of
1985]

(2) The Governor or the Deputy Governor of the Central Bank


who issues a certificate under this section shall not be examined or crossexamined with respect to that certificate.
(3) Every certificate issued under this section shall be
substantially in the following form:

[.13, 52 of
1985]

I,........, Governor of the Central Bank of Sri Lanka*/Deputy


Governor for the time being acting as the chief executive officer of the
Central Bank of Srl Lanka, do hereby certify that I have examined the
document marked .....which purports to be a currency note of the
denomination ..........bearing number ....., and dated ..and that such
document is an imitation of a currency note and is not a currency note
issued or deemed to be issued by the Central Bank of Sri Lanka.
Signature: ....................
Date:.............................
(*Delete inapplicable words)
(4) This section shall apply
(a) to proceedings in respect of all offences whether
committed before or after the 8th day of July, 1954, and

Application of
section.
[.3, 33 of
1954]

(b) to proceedings pending before or awaiting inquiry or trial


in any court on the 8th day of July, 1954.
59A. (1 ) Where in any proceedings in any court it has to be
determined whether an article purporting to be a coin or a current coin is
an imitation of such coin or current coin, a certificate under the hand of
the Governor of the Central Bank or, if the Governor of the Central Bank

Conclusive
evidence of
imitation of a
coin or current
coin.

28

Cap 422]

[S.2, 5 of 1968]
[S.2, 52 of
1985]

MONETARY LAW

(7th Rev.)

is temporarily absent from duty or temporarily unable to perform his


functions and duties, a certificate under the hand of the Deputy Governor
for the time being acting as the chief executive officer of the Central
Bank, to the effect that such article is an imitation of a coin or a current
coin, as the case may be, and is not a coin or a current coin issued or
deemed to be issued by the Central Bank of Sri Lanka, shall be received
in those proceedings as conclusive evidence of the fact that such article is
an imitation of a coin or current coin.
(2) The Governor or the Deputy Governor of the Central Bank
who issues a certificate under this section shall not be examined or crossexamined with respect to that certificate.

[.14, 52 of
1985]

(3) Every certificate issued under this section shall be


substantially in the following form:
I, .........., Governor of the Central Bank of Sri Lanka*/Deputy
Governor for the time being acting as the chief executive officer of the
Central Bank of Sri Lanka, do hereby certify that I have examined the
article delivered in a sealed packet by .........together with letter No.... in
respect of case No. ...... which purports to be a coin*/current coin of
the denomination ..........and that such article is an imitation of a coin*/
current coin issued or deemed to be issued by the Central Bank of Sri
Lanka and is not a coin*/current coin issued or deemed to be issued by
the Central Bank of Sri Lanka.
Signature :....................
Date :-..........................
(*Delete inapplicable words)
(4) This section shall apply
(a) to proceedings in respect of all offences whether
committed before or after the fifteenth day of August,
1967; and
(b) to proceedings pending before or awaiting inquiry or trial
in any court on the fifteenth day of August, 1967.
(5) In this section, the expression current coin shall have the
same meaning as in the Penal Code.
(B) - Demand Deposits

Definition of
demand
deposits.

60. For the purposes of this Act, demand deposits means all
those liabilities of the Central Bank and of commercial banks which are
denominated in Sri Lanka currency and are subject to payment in legal
tender upon demand by cheque, draft or order.

(7th Rev.)

MONETARY LAW

[Cap 422

61. The acceptance or creation of demand deposits shall be subject


to the control of the Monetary Board in accordance with the powers
granted to the board under this Act.
PART II

Acceptance
and creation of
demand
deposits.

- THE MONEY SUPPLY

62. For the purposes of this Act, the expression the money
supply means all currency, demand deposits, time and savings deposits
and such other financial assets as may be prescribed by the Monetary
Board from time to time and are owned by persons other than the
Government, commercial banks and such financial institutions or
categories of financial institutions as may be prescribed by the Monetary
Board and for the purposes of this section financial institutions shall
have the same meaning assigned to it in subsection (5) of section 93.
PART III

29

Expression of
the Definition of
the money
supply.
[.13, 32 of
2002]

PAYMENT AND SETTLEMENT SYSTEMS

62A. (1) The Central Bank may establish and operate one or
more systems
(a) for the transfer of funds by and between the Central Bank,
commercial banks and such other institutions or persons that
maintain a settlement account with the Central Bank and who
are admitted as participants to such system by the Central
Bank;
(b) for the transfer and settlement of scripless securities by and
between the Central Bank and direct participants;
(c) for the settlement of payment obligations in respect of transfer
and settlement of scripless securities under paragraph (b).
(2) A system established under subsection (1) may be linked to
another system in Sri Lanka or elsewhere for the clearing or settlement
of payment obligations or securities.
(3) The Central Bank may enter into agreements with the
participants of a system established under subsection (1) and issue in
writing to the participants of the system rules for the operation of the
system.
(4) Without prejudice to the generality of subsection (3), such rules
may provide
(a) for the provision of intra-day credit against the collateral of
securities to the participants and the conditions attaching to the
provision of such credit;
(b) for the appointment of the Central Bank as a certification
authority for the purpose of issuing certificates to participants

Establishment
of Systems for
transfer of
funds and
transfer and
settlement of
Scripless
Securities.
[.14, 32 of
2002]

29A

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MONETARY LAW

(7th Rev.)

under any law applicable to the appointment of certification


authorities in respect of electronic signatures;
(c) for the formulation and adoption of a code of conduct for
participants;
(d) for the authentication of transactions carried out electronically;
(e) for the Central Bank, if it considers necessary in the interest of
the system, to cease or suspend the operation of the system, or
to withdraw or suspend the privileges or rights of any
participant or category of participants or to suspend or revoke
the membership in the system of a participant;
(f) for the appointment of auditors or inspectors for the auditing or
inspection of the operating systems of participants in respect of
the settlement system; and
(g) for the payment of charges and fees to the Central Bank by the
participants.
(5) A payment or transfer made through a system established under
subsection (1), is final and irrevocable
(a) in the case of a transaction involving a funds transfer only,
upon the settlement account of the participant requesting the
funds transfer being debited;
(b) in the case of a transaction involving a securities transfer only,
upon the securities account of the participant requesting the
securities transfer being debited;
(c) in the case of a transaction involving both a funds transfer and
a securities transfer, upon debiting the settlement account or the
securities account of a participant requesting the funds transfer
or the securities transfer as the case may be, whichever occurs
earlier,
and notwithstanding anything to the contrary in any other law,
such payment or transfer shall not be required to be reversed,
repaid or set aside nor shall any court, order such payment or
transfer to be rectified or stayed.
(6) Scripless securities issued under this Act or the Local Treasury
Bills Ordinance or the Registered Stock and Securities Ordinance shall be
transferred, pledged, encumbered, lent, borrowed or transacted in only as
provided by or under the regulations made under this Act or the Local
Treasury Bills Ordinance or the Registered Stock and Securities
Ordinance, as the case may be. A transfer, pledge, encumbrance, loan,
borrowing or transaction effected accordingly shall be valid and effectual
notwithstanding any other written law, and the claim of a participant of
the system on any scripless securities posted as collateral in accordance

(7th Rev.)

MONETARY LAW

[Cap 422

with those regulations as may be applicable shall have priority over the
claims on such scripless securities of a person who is not a participant of
the system.
(7) Nothing in subsections (5) and (6) shall affect any other legal
right or remedy available to a person who has suffered any loss or
damage by a payment, transfer or settlement effected through a system
established under subsection (1).
(8) Notwithstanding the provisions of any written law relating to
the winding up of companies, if proceedings for the winding up of a
participant of a system have commenced
(a) the Central Bank may do anything permitted or required by the
rules of the system in order to net obligations incurred before
or on the day on which the proceedings commenced;
(b) the obligations that are netted under the rules of the system
shall be disregarded in the proceedings; and
(c) the netting made by the Central Bank and any payment made
by the participant under the rules of the system shall not be
voidable in the proceedings.
(9) If proceedings for the winding up of a participant is
commenced and a payment or settlement owed by such participant has
been made as referred to in subsection (5) or (8), and if a payment or
settlement of such funds or securities would have been void or voidable
under any other written law if made outside the system, the liquidator of
such participant may recover from the person to whose benefit such
payment or settlement was made such amount as would have been
recoverable if such payment or settlement had been made outside the
system.
(10) Without prejudice to the generality of the provisions of
section 47, the Monetary Board, any member of the Monetary Board, any
officer or employee of the Central Bank or any person acting under the
direction of the Monetary Board shall not be liable for any loss or
damage suffered by any person or participant, arising directly or
indirectly, from the use of the system by any participant, unless such loss
or damage results from gross negligence or willful misconduct of the
Monetary Board or any member of the Monetary Board or any officer or
employee of the Central Bank or any person acting under the direction of
the Monetary Board.
(11) Where any transaction effected through a system established
under subsection (1) is carried out electronically, such transaction shall
not be denied legal effect, validity or enforceability solely on the ground
that such transaction is carried out electronically or that the information
relating to such transaction is maintained in the form of an electronic
record, and such record may be tendered in evidence in proceedings
before any court or tribunal in accordance with the provisions of Parts II

29B

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(7th Rev.)

and III of the Evidence (Special Provisions) Act, No.14 of 1995 or any
other law for the time being in force relating to the tendering of
computer evidence, before any court or tribunal.
(12) Any or all of the functions referred to in subsection (1) may,
be carried out by a body corporate authorised for the purpose by the
Monetary Board, subject to such terms and conditions as may be imposed
by the Monetary Board.
(13) For the purposes of this section
direct participant and scripless securities shall have the same
meaning as in section 112A;
rules mean any rule issued by the Central Bank under subsection
(3) of this section;
securities shall have the same meaning as in section 112A except
that for the purposes of paragraph (a) of subsection (4),
securities shall not include securities of the Central Bank issued
in scripless form or otherwise;
settlement account means an account maintained by a participant
with the Central Bank under this Act and used for the purposes
of the system with the approval of the Central Bank;
securities account means an account maintained by a participant
with the Central Bank in terms of paragraph (b) of section
112A.

CHAPTER IV
THE CENTRAL BANK AND NATIONAL MONETARY POLICY
PART I

Principles
governing
determination
of domestic
monetary
policy.

- DOEMSTIC MONETARY STABILIZATION

63. (1) The Monetary Board shall endeavour so to regulate the


supply, availability, and cost of money as to secure, so far as possible by
action authorised by this Act, the objects mentioned in section 5; and
shall for such purpose have regard to the monetary needs of particular
sectors of the economy as well as of the economy as a whole.
(2) In determining its domestic monetary policies the Monetary
Board shall especially consider their effects on Sri Lankas international
financial position as evidenced by the relation of domestic to world
prices and costs, by the level and composition of exports and imports, by
the international balance of payments, and, ultimately, by the ability of
the Central Bank to maintain the international stability of the Sri Lanka
rupee and its free convertibility for current international transactions.

(7th Rev.)

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[Cap 422

64. (1) Whenever the Monetary Board anticipates economic


disturbances that are likely to threaten domestic monetary stability in Sri
Lanka or whenever abnormal movements in the money supply or in the
price level are actually endangering such stability, it shall be the duty of
the board
(a) to adopt such policies, and to cause such remedial
measures to be taken, as are appropriate in the
circumstances and authorised by this Act;
(b) to submit to the Minister in charge of the subject of
Finance and, if not prejudicial to the public interest, make
public, a detailed report which shall include, as a
minimum, an analysis of
(i) the causes of the anticipated economic disturbances,
or of the actual abnormal movements of the money
supply or the price level;

Action to
preserve
domestic
monetary
stability

29D

30

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MONETARY LAW

(7th Rev.)

(ii) the probable effects of such disturbances or


movements on the level of production, employment,
and real income in Sri Lanka; and
(iii) the measures which the Monetary Board has already
taken, and the further monetary, fiscal, or
administrative measures which it proposes to take or
recommends for adoption by the Government.
(2) Without prejudice to the generality of the provisions of
subsection (1), it shall be the duty of the Monetary Board to submit a
report in terms of paragraph (b) of that subsection if at the end of any
month the board finds that the amount of the money supply has increased
or decreased by more than fifteen per centum, or the cost of living index
has increased by more than ten per centum, of its level at the end of the
corresponding month in the preceding year.
(3) The Monetary Board shall continue to submit further reports
periodically so long as the circumstances which occasioned the
submission of the first report constitute a threat to domestic monetary
stability.
PART II

- INTERNATIONAL MONETARY STABILIZATION

Principles
governing
determination
of international
monetary
policy.
[.8, Law 10 of
1978]

65. In determining its international monetary policy the Monetary


Board shall endeavour to maintain the par value of the Sri Lanka rupee,
or where no determination of such par value has been made under
section 3, maintain such exchange arrangements as are consistent with the
underlying trends in the country and so relate its exchange with other
currencies as to assure its free use for current international transactions.

International
Reserve.

66. (1) In order to maintain the international stability of the Sri


Lanka rupee and to assure the greatest possible freedom of its current
international transactions, the Monetary Board shall endeavour to
maintain among the assets of the Central Bank an international reserve
adequate to meet any foreseeable deficits in the international balance of
payments.

[.8, Law 10 of
1978]

(2) In judging the adequacy of the International Reserve, the


Monetary Board shall be guided by the estimates of prospective receipts
and payments of foreign exchange by Sri Lanka; by the volume and
maturity of the Central Banks own liabilities in foreign currencies; and,
in so far as they are known or can be estimated, by the volume and
maturity of the foreign exchange assets and liabilities of the Government
and of banking institutions and other persons in Sri Lanka. So long as
any part of the foreign currency assets of Sri Lanka are held in
currencies which are not freely convertible by the Central Bank, whether
directly or indirectly, into special drawing rights or such other common

(7th Rev.)

MONETARY LAW

[Cap 422

31

denominator prescribed by the International Monetary Fund or into


foreign currencies freely usable in international transactions, or are frozen,
the Monetary Board shall also take this factor into account in judging the
adequacy of the International Reserve of the Central Bank.
67. (1) The International Reserve of the Central Bank may include
the following assets :

Composition of
International
Reserve.
[.7, 2 of 1969]

(i) gold;
(ii) assets in foreign currencies in the form of (a) documents and instruments of types customarily
employed for the international transfer of funds; or
(b) demand and the time deposits in central banks,
treasuries, and commercial banks abroad; or
(c) securities of foreign Governments; or
(d) foreign notes and coins; and
(iii)

either the whole, or such maximum percentage of the


whole, of the holdings of such drawing rights in the
Special Drawing Rights Department in the International
Monetary Fund according as may be determined from
time to time by the Monetary Board.

[.7,2 of 1969]

[.7,2 of 1969]

[.8, Law 10 of
1978]

(2) The Monetary Board shall endeavour to hold at least a


nuclear reserve in gold or currencies freely convertible by the Central
Bank, whether directly or indirectly, into gold. The board shall
particularly consider the prospects of stability and convertibility of all of
the currencies in the International Reserve as well as the anticipated
demand for such currencies.
68. (1) Whenever the Monetary Board anticipates that there may
develop a deficit in the international balance of payments of such
magnitude as to cause a serious decline in the International Reserve, or
whenever there is an imminent threat of a serious decline in the
International Reserve, or whenever the International Reserve actually falls
to a level which the board considers to be a threat to the international
stability of the Sri Lanka rupee, or whenever international payments or
remittances are being made which in the opinion of the board constitute
an actual or a potential threat to such stability or are prejudicial to the
national welfare, it shall be the duty of the board
(a) to adopt such policies, and to cause such remedial measures to
be taken, as are appropriate to the circumstances and authorised
by this Act, and

Action to
preserve the
international
stability of the
rupee.

32

Cap 422]

MONETARY LAW

(7th Rev.)

(b) to submit to the Minister in charge of the subject of Finance a


detailed report which shall include, as a minimum, an analysis
of

Dealings in
gold.

(i)

the nature, causes, and magnitude of the actual or


potential threat to the international stability of the Sri
Lanka rupee; and

(ii)

the measures which the board has already taken, and the
further monetary, fiscal or administrative measures
which it proposes to take or recommends for adoption
by the Government.

(2) The Monetary Board shall submit further periodical reports


to the Minister in charge of the subject of Finance until the threat to the
international stability of the rupee has disappeared.

CHAPTER V
INSTRUMENTS OF CENTRAL BANK ACTION
PART I

- OPERATIONS IN GOLD AND FOREIGN EXCHANGE

*70. The Central Bank may import, export, buy, sell, hold, or
otherwise deal in gold in any form.
Foreign
exchange
operations of
Central Bank.

71. (1) The Central Bank may engage in spot or other foreign
exchange operations, that is to say, it may effect transfers of funds by
telegram, letter, or other method of communication, and may buy and sell
foreign notes and coins and any documents or instruments of types
customarily employed for the international transfer of funds.
(2) Foreign exchange operations may be transacted by the
Central Bank only with
(a) commercial banks operating in Sri Lanka;
(b) the Government and agencies or institutions acting on
behalf of the Government (whether established by any
written law or otherwise);
(c) foreign commercial or central banks;
(d) international financial institutions; and
* Section 69 is repealed by Law No. 10 of 1978.

(7th Rev.)

MONETARY LAW

[Cap 422

33

(e) foreign Governments and agencies or institutions acting


on behalf of foreign Governments.
72. In order to ensure the free use of the Sri Lanka rupee for
current international transactions, the Central Bank may buy any quantity
of foreign exchange offered, or sell any quantity of foreign exchange
demanded, by any commercial bank in Sri Lanka:
Provided that nothing in the preceding provisions of this subsection
shall require the Central Bank to purchase foreign exchange in any
currency which is not freely convertible by the bank, whether directly or
indirectly, into special drawing rights or such other common denominator
prescribed by the International Monetary Fund or into foreign currencies
freely usable in international transactions, unless, in the opinion of the
Monetary Board, there is an adequate demand, actual or anticipated, for
such currency for the purpose of making payments for current
international transactions, or unless the Monetary Board, with the
concurrence of the Minister in charge of the subject of Finance, makes a
determination that the acquisition of such currency is in the national
interest.
73. (1) The Governor shall determine and certify the parities with
respect to the Sri Lanka rupee of foreign currencies ordinarily required
for the international transactions of Sri Lanka. Parities so determined and
certified shall be published in the Gazette, and shall be recognized as the
legal parities for all purposes. The Governor may in addition certify the
parity of any foreign currency not included in the published list of
parities.
(2) The Governor may at any time desist from certifying or
publishing the parity of any foreign currency if the exchange rates for
that currency in international markets are unstable or widely divergent.
(3) The legal parities of foreign currencies with respect to the
Sri Lanka rupee shall be determined by the Governor, in accordance with
the following provisions :
(a) The currency of a country which is a member of the
International Monetary Fund shall have its parity with
respect to the rupee established on the basis of its par
value as agreed with the fund in every case where the
country is permitting exchange transactions between its
currency and the currencies of other members only within

Purchases and
sales of foreign
exchange from
or to
commercial
banks in Sri
Lanka.
[S.8, Law 10 of
1975]
[.15, 32 of
2002]

Parities of
foreign
currencies with
respect to the
rupee.

34

Cap 422]

MONETARY LAW

(7th Rev.)

the maximum and the minimum rates prescribed in the


International Monetary Fund Agreement for such
transactions. In any other case, or if the par value of the
currency of a member country has not been agreed with
the fund, the parity of such currency with respect to the
rupee may be calculated on the basis of the exchange
rates for that currency in the international markets; and if
there is divergence among the rates quoted in the
international markets, the Governor may determine which
rates to use for the determination of parity.
[.8, Law 10 of
1978]

(b) The currency of a country which is not a member of the


International Monetary Fund shall have its parity with the
rupee calculated on the basis of the exchange rates for
the currency in international markets; and if there is
divergence among the rates quoted in international
markets the Governor may determine which rates shall be
used for the determination of the parity.

Exchange rates
for Central
Bank
transactions.

74. (1) The Monetary Board shall from time to time determine the
rates at which the Central Bank will buy and sell foreign exchange.

[.8, Law 10
of 1978]
[.16, 32 of
2002]

(2) The rates determined under subsection (1) for spot


transactions shall not differ by more than four and one-half per centum
from the legal parities determined under Section 73, except in the case of
the rates for purchases and sales of foreign notes and coins, in which
case the Board may have regard to the additional costs of, or incidental
to, such transactions.
(3) The rates determined under subsection (1) for transactions
other than spot transactions shall not differ from the corresponding rates
for spot transactions, except in so far as is necessary to reimburse the
bank for the additional costs, expenses, or risks of each type of
transaction.
(4) The Central Bank shall not accept any commission or
impose any charge of any description in respect of the purchase or sale
of foreign exchange, except telegraphic or other costs actually incurred in
connection with such purchase or sale.

Loans to and
from foreign
institution, &c.

75. (1 ) The Central Bank may grant loans to, or take loans from,
any institution of any description referred to in paragraphs (c), (d) and (e)
of subsection (2) of section 71 and may engage in such other transactions
with such institutions as are expedient or desirable in the public interest

(7th Rev.)

MONETARY LAW

[Cap 422

35

and are appropriate having regard to the character of the bank as a


Central Bank.
The Central Bank may act as agent or correspondent of any such
institution other than a foreign commercial bank.
(2) Any loan taken as provided in subsection (1) may be secured
by gold or other assets held by the Central Bank.
PART II

- REGULATION OF FOREIGN EXCHANGE OPERATIONS OF


COMMERCIAL BANKS

76. (1) The Monetary Board shall determine the minimum rate at
which commercial banks may buy spot exchange and the minimum rate
at which they may sell spot exchange. Where the Monetary Board has
certified the legal parity of a currency in accordance with section 73, the
maximum and minimum exchange rates established for such currency
shall not differ from such parity by more than four and one-half per
centum.

Rates
applicable to
purchases and
sale of
exchange by
commercial
banks.
[8, 10 of 1978]
[.17, 32 of
2002]

(2) No commercial bank shall buy spot exchange at any rate


below the minimum rate determined under subsection (1) or sell spot
exchange at any rate exceeding the maximum rate so determined; and no
commercial bank shall in respect of any purchase or sale of such
exchange accept any commission or impose any charge of any
description except telegraphic or other costs actually incurred in
connection with such purchase or sale.
(3) No commercial bank shall carry out any transaction in
exchange, not being a spot transaction, at any rate which differs from the
rate determined under subsection (1) for a spot transaction
(a) by a margin greater than is reasonable having regard to
the additional costs, expenses or risks of the transaction;
or
(b) by such margin, if any, as may be prescribed in that
behalf by the Monetary Board.
76A. (1) Where the Governor is of opinion that it is inexpedient to
determine and certify, in accordance with the provisions of section 73, the
parities with respect to the Sri Lanka Rupee of foreign currencies
ordinarily required for the international transactions of Sri Lanka, the
Governor

Governors
powers in
relation to
exchange rate.
[.18, 32 of
2002]

36

Cap 422]

MONETARY LAW

(7th Rev.)

(a) may desist from determining and certifying the parities of such
foreign currencies under that section; and
(b) may or may not determine the rates at which the Central Bank
may buy and sell foreign exchange in spot or other
transactions.
(2) Where the Governor acts in terms of subsection (1), the
provisions of sections 73, 74 and 76 shall cease to have any force or
effect in law.
(3) Where the Governor determines, under paragraph (b) of
subsection (1) the rates at which the Central Bank may buy and sell
foreign exchange in spot or other transactions, the following provisions
shall apply upon such determination (a) such determination may be limited to such foreign currencies
as the Governor may deem appropriate;
(b) the rates determined under paragraph (b) of subsection (1) shall
not apply in the case of the purchases and sales of foreign
notes and coins, in which case the Central Bank may have
regard to the additional costs of, or costs incidental to, such
purchases or sales;
(c) the Central Bank shall not accept any commission or impose
any charge of any description in respect of the purchase or sale
of foreign exchange, except the telegraphic or other costs
actually incurred in connection with such purchase or sale;
(d) it shall be competent for the Governor to authorise, in writing,
any officer by name or by office, to vary from time to time
within such limits as may be specified by the Governor, the
rates determined by the Governor under paragraph (b) of
subsection (1);
(e) where the Governor makes a determination under paragraph (b)
of subsection (1) with respect to foreign currency but makes no
determination under that subsection with respect to any
particular foreign currency, the Central Bank may buy and sell
such currency in respect of which no determination has been
made at a rate calculated on the basis of the exchange rate for
that currency in the international markets in relation to any
foreign currency with respect to which the Governor has made
a determination under paragraph (b) of subsection (1).
(4) Where the Governor desists from determining and certifying
parities under subsection (1)(a) and does not determine the rates at which
the Central Bank may buy and sell foreign exchange in spot or other
transactions under paragraph (b) of subsection (1), the Central Bank may
buy and sell foreign exchange at such rates as the Governor or an officer
authorised by the Governor for the purpose may deem appropriate.
(5) (a) Where the Governor determines under subsection 1(b) the
rates at which the Central Bank may buy and sell foreign
exchange, the Governor may determine the minimum rate at

(7th Rev.)

MONETARY LAW

[Cap 422

which any commercial bank may buy spot foreign exchange


and the maximum rate at which any commercial bank may
sell spot foreign exchange.
(b) Notwithstanding that the Governor has desisted from
determining and certifying parities under subsection (1)(a)
and has not determined the rates at which the Central Bank
may buy or sell foreign exchange under paragraph (b) of
subsection (1) the Governor may determine the minimum
rate at which any commercial bank may buy spot foreign
exchange and the maximum rate at which any commercial
bank may sell spot foreign exchange.
(c) The provisions of paragraph (d) of subsection (3) shall,
mutatis mutandis, apply to and in relation to, the minimum
and maximum rates determined under paragraph (a) or
paragraph (b) of this subsection.
(d) Where no determination is made under paragraph (a) or
paragraph (b) of this subsection, a commercial bank may
buy, sell or carry out any transaction in foreign currency at
rates calculated on the basis of the exchange rates for that
currency in the international markets.
(e) Where a determination is made under paragraph (a) or
paragraph (b) of this subsection as to the minimum and the
maximum rates at which commercial banks may buy and
sell spot foreign exchange
(i) no commercial bank shall buy spot foreign exchange
at any rate below the minimum rate determined
under those paragraphs as may be applicable or sell
spot foreign exchange at any rate exceeding the
maximum rate so determined as may be applicable;
and no commercial bank shall in respect of the
purchase or sale of such exchange accept any
commission or impose any charge of any description
except telegraphic or other costs actually incurred in
connection with such purchase or sale; and
(ii) no commercial bank shall carry out any transaction
in foreign exchange, not being a spot transaction, at
any rate which differs from the rates determined
under paragraph (a) or paragraph (b) of this
subsection as may be applicable by a margin greater
than is reasonable having regard to the additional
costs, expenses or risks of the transaction, or by such
margin, if any, as may be prescribed in that behalf
by the Governor.
77. (1) In order more effectively to control the use and disposition
of the foreign exchange resources of Sri Lanka or in order to promote
the domestic investment of the resources of commercial banks, the
Monetary Board may from time to time fix, or prescribe the manner of

Control of
foreign
exchange
holdings of
commercial
banks.

37

38

Cap 422]

MONETARY LAW

(7th Rev.)

determination of, the maximum amount of the working balances which


commercial banks may hold in foreign currencies generally or in any
specified foreign currency or currencies, and may from time to time
require such banks to sell to the Central Bank all or any specified part of
the surpluses in excess of such maximum amount.
(2) The Monetary Board may, having regard to the special needs
of any particular commercial bank, permit that bank to hold working
balances in any specified foreign currency in excess of the maximum
amount fixed or determined for such currency under subsection (1).
(3) In ascertaining whether the working balances of any
commercial bank in any foreign currency are in excess of the maximum
amount fixed or determined as herein before provided, there may be
deducted from such balances the net liabilities of that bank in currencies
into which the first-mentioned currency is freely convertible.
Requirements
regarding
currency
position of
commercial
banks.

78. (1) The Monetary Board may direct that the proportion which
the assets in Sri Lanka rupees of commercial banks in Sri Lanka bear to
the liabilities in Sri Lanka rupees of such banks shall not be less than
such proportion as the Monetary Board may prescribe, or may direct such
banks to maintain a balanced position between their assets and liabilities
in any currency or currencies in which they operate. The board shall
allow to such banks a reasonable period of time in which to comply with
any such direction.
(2) Any direction under subsection (1) shall be made applicable
to all commercial banks without discrimination:
Provided, however, that the Monetary Board may give such a
direction to any particular commercial bank in any case where, in the
opinion of the board, such action is necessary in order to protect against
possible loss to depositors and other creditors of the bank who are
citizens of Sri Lanka or to companies or associations controlled by
citizens of Sri Lanka.

Revaluation
profits and
losses on
holdings of
foreign
exchange by
banking
institutions.
[.8, Law 10 of
1978]

79. (1) Any revaluation profits realized or any revaluation losses


incurred by banking institutions on their net assets and liabilities in
foreign currencies freely convertible by the Central Bank, whether
directly or indirectly, into special drawing rights or such other common
denominator prescribed by the International Monetary Fund or into
foreign currencies freely usable in foreign transactions and arising from
changes in the par value of the Sri Lanka rupee or in the legal parities or
in the Central Banks exchange rates, of such currencies with respect to
the Sri Lanka rupee, shall be assumed in their entirety by the Central
Bank and shall be debited or credited accordingly.
(2) (a) If the Monetary Board so declares, the provisions of
subsection (1) shall apply in relation to revaluation profits realized or

(7th Rev.)

MONETARY LAW

[Cap 422

39

revaluation losses incurred by banking institutions on their net assets or


liabilities in any specified foreign currency which is not freely convertible
by the Central Bank, whether directly or indirectly, into gold.
(b) Any such declaration shall have effect until it is revoked by the
board. Notice of the date on which any such declaration will be revoked
shall be given to banking institutions not less than eight days before the
proposed date of revocation.
(c) During the period commencing on the date of the notice
referred to in paragraph (b) and ending on the date of revocation of the
declaration to which it relates, every banking institution shall comply
with such directions, if any, as may be given by the Monetary Board for
the purpose of preventing banking institutions from increasing their
holdings of the currency to which the declaration relates.
(3) Where in consequence of a determination made under
subsection (1 ) of section 76A, the provisions of sections 73, 74 and 76
cease to be of any force or effect, the provisions of subsections (1 ) and
(2) of this section shall also cease to be of any force or effect, and
accordingly, the Central Bank shall not assume any revaluation profits
realised or revaluation losses incurred by any banking institution.

[3, Law 16 of
1977]

80. (1) Every commercial bank shall, as soon as may be after the
close of business at the end of such period as may be prescribed by the
Monetary Board, make a report to the Central Bank setting out the
volume and composition of its purchases and sales of foreign exchange
during that period, and shall furnish such additional information as the
Central Bank may require with reference to such purchases and sales and
to the movements of its accounts in foreign currencies.

Information on
exchange
operations.

(2) The Monetary Board may also require any other person to
make reports to the Central Bank at specified times or intervals as to all
transactions or operations in gold, in any shape or form, and in foreign
exchange.
(3) Every report under this section shall be in such of the
appropriate forms as the Monetary Board may prescribe for the purpose.
(4) The Director of Bank Supervision may make such inspection
or examination of the books and accounts kept by any commercial bank
or other person as he may deem necessary for the purpose of verifying
the accuracy of any statement set out in any report made by such
commercial bank or person.
81. Whenever there is in progress an inward or outward movement
of capital which in the opinion of the Monetary Board is actually
endangering, or threatening to endanger, the domestic or international

Capital
movements.

40

Cap 422]

MONETARY LAW

(7th Rev.)

stability of the Sri Lanka rupee, it shall be the duty of the board to take
such action as is appropriate under section 64 or section 68.
PART III-CREDIT OPERATIONS WITH BANKING INSTITUTIONS
Priciples
governing
credit
operations.

82. (1 ) The Central Bank shall exercise the authority conferred by


this Part of this Act to carry out the national monetary policy by
regulating the supply, availability, cost, and character of credit and by
providing the banking system with liquid funds in times of need.
(2) If the Monetary Board determines that it is necessary so to
do by reason that, in the opinion of the board, there is in progress, or has
occurred, an expansion of the money supply that represents a threat to
the domestic or international monetary stability of Sri Lanka, the board
shall direct the suspension of the grant of credit by the Central Bank to
banking institutions, except when the board, having regard to the special
circumstances, by unanimous decision approves the grant of credit.

Types of
operations
normally
authorised.
[.88, 30 of
1971]

83. (1 ) Subject to the principles stated in section 82 of this Act,


the Central Bank may ordinarily transact with commercial banks and the
National Savings Bank, credit operations of any description set out
hereunder :
(a) Commercial credits The Central Bank may discount,
rediscount, buy and sell bills, acceptances, promissory
notes, and other credit instruments with maturities of not
more than 180 days from the date of their discount,
rediscount, or acquisition by the Central Bank and
resulting from transactions related to
(i) the importation, exportation, purchase, or sale of
readily saleable goods and products, or their
transportation within Sri Lanka; or
(ii) the storage of non-perishable goods and products
which are duly insured and deposited under
conditions assuring their preservation, in authorised
bonded warehouses or in other places approved by
the Monetary Board.
(b) Production credits The Central Bank may discount,
rediscount, buy and sell bills, acceptances, promissory
notes, and other credit instruments having maturities of
not more than 270 days from the date of their discount,
rediscount, or acquisition by the Central Bank and
resulting from transactions related to the production,
manufacture, or processing of agricultural, animal,
mineral, or industrial products.

(7th Rev.)

MONETARY LAW

[Cap 422

(c) Advances. The Central Bank may grant loans or


advances for any fixed period not exceeding 180 days
upon promissory notes secured by the pledge with the
bank of
(i) gold coins or bullion; or
(ii) negotiable Treasury Bills, promissory notes,
debentures, bonds, or other negotiable securities of
the Government; or
(iii) securities issued by the Central Bank itself or other
credit instruments of banking institutions operating in
Sri Lanka and approved by the Monetary Board; or
(iv) credit instruments referred to in paragraph (a) of this
subsection; or
(v) credit instruments referred to in paragraph (b) of this
subsection.
Notwithstanding anything in the preceding provisions of this
paragraph, a loan or advance secured by the pledge of any credit
instrument referred to in paragraph (b) of this subsection may be for a
period not exceeding 270 days.
(2) Except in such circumstances and subject to such conditions
as the Monetary Board may determine, the Central Bank shall not grant
to any commercial bank or to the National Savings Bank, any loan or
advance upon the security of the pledge of any instrument referred to in
paragraph (c) of subsection (1) in any case where such instrument is held
by such commercial bank or the National Savings Bank as security for
the repayment to it of the amount due upon any overdraft account.

[.88, 30 of
1971]

84. Whenever, in the opinion of the Monetary Board, a


deflationary situation exists which requires special relaxation of normal
maturities applying to Central Bank credit operations, the board may
determine that credits may be granted by the bank on instruments
referred to in paragraph (a) or paragraph (b) of section 83(1) having a
maturity of a period longer than the period specified in those paragraphs
but not exceeding one year, and may authorise loans or advances to be
granted under paragraph (c) of that section for any period not exceeding
one year.

Extension of
maturitie.

85. (1) in special circumstances in which the Monetary Board


considers it necessary to promote or facilitate lending operations or
particular classes of such operations by banking institutions which make
loans upon mortgages, whether of movable or of immovable property, the
Central Bank may grant loans or advances to any such institution against

Loans to
mortgage
institutions.

41

42

Cap 422]

MONETARY LAW

(7th Rev.)

promissory notes given by such institution subject to and in accordance


with the following conditions :
(a) that the loan or advance is repayable within a period not
exceeding one year;
(b) that the repayment to the Central Bank of the loan or
advance is secured by the assignment to the bank by way
of pledge
(i) of debts falling due for payment within the same
period to the institution by its borrowers, and
(ii) of the mortgages given as security for the payment
of such debts to the institution;
(c) that the borrowers from whom such debts are due to the
institution are not in default or arrears; and
(d) that the total amount of the loan or advance by the
Central Bank must not exceed fifty per centum of the
total amount of the debts which are so assigned to it.
(2) The Central Bank may make advances to any institution
referred to in subsection (1) upon the terms and conditions mentioned in
section 83(1).
(3) Loans or advances shall not be made under subsection (1 ) by
the Central Bank at any time when the board is of opinion that the grant
thereof would cause or aggravate inflationary tendencies.
Emergency
loans and
advances.

86. (1) In periods of emergency or of imminent financial panic


which directly threaten monetary and banking stability, the Central Bank
may grant to banking institutions, and may renew, extraordinary loans or
advances secured by any assets which are defined as acceptable for the
purpose by the Monetary Board by unanimous decision.
(2) A banking institution to which an extraordinary loan or
advance is granted under subsection (1) shall not, while the loan or
advance is outstanding, expand the total volume of its loans and
investments except with the prior approval of the Monetary Board.

Interest and
discount rates.

87. The Monetary Board shall fix the interest and discount rates to
be charged by the Central Bank on its credit operations in accordance
with the character and term of each such operation; and the board shall,
in so doing, have regard to the soundness of credit conditions, the needs
of the market, and the general requirements of the national monetary
policy.

(7th Rev.)

MONETARY LAW

[Cap 422

88. The Monetary Board may prescribe the conditions subject to


which credit facilities of the Central Bank will be available to banking
institutions, including conditions relating to the rates of interest charged
by such institutions, to the purposes for which their loans in general are
destined, and to any other matter affecting or connected with the credit
policy of such institutions.
PART IIIA- MEDIUM AND LONG TERM CREDIT OPERATIONS WITH

General
conditions as to
grant of credit
facilities.

[.67, 11 of
1963]

CREDIT INSTITUTIONS

88A. (1 ) With the object of granting financial accommodation to


any credit institution in respect of lending operations carried out by such
institution for any productive purpose, the Central Bank may, from time
to time, grant, out of the Fund, any loan or advance to such institution
against a promissory note given by such institution subject to and in
accordance with the following conditions :-

Loans or
advances to
credit
institutions.
[67, 11 of
1963]

(a) that the loan or advance is repayable within such period


not exceeding fifteen years as may be determined by the
bank;
(b) that the repayment to the Central Bank of the loan or
advance is secured by the assignment to the bank by way
of pledge of debts owing to such institution by its
borrowers in respect of such purpose or purposes; and

[.2, 21 of
1963]

(c) such other conditions including the rate of interest to be


charged by the Bank on such loan or advance, as may be
determined by the Monetary Board.
Such assignment is in this Part of this Act referred to as an assignment
by way of pledge.
(2) The Monetary Board may prescribe the conditions subject to
which loans or advances will be available out of the Fund to credit
institutions, including conditions relating to the rates of interest charged
by such institutions, to the purposes for which their loans in general are
destined, and to any other matters affecting or connected with the credit
policy of such institutions.
(3) An assignment by way of pledge to the Central Bank under
this Part of this Act shall be effected by an instrument which shall be
substantially in the following form :Form of Assignment by way of pledge to the Central Bank of Sri
Lanka under section 88A of the Monetary Law Act
We, ...., in terms of section 88A of the Monetary Law Act, do
hereby assign to the Central Bank of Sri Lanka by way of pledge, the

43

[.2, 52 of
1985]

44

Cap 422]

MONETARY LAW

(7th Rev.)

debts owing to us, particulars whereof are set forth in the Schedule
hereto, as security or further security for the repayment to the Central
Bank of Sri Lanka of a *loan/advance of Rs ............ granted to us by the
Bank repayable ............with interest at ..% per annum.
*Delete whichever is inapplicable.

SCHEDULE
Amount of
debt

[.2, 21 of
1968]

Borrowers
name and
address

Date

Notary

(4) The Central Bank shall, on the execution of an assignment by


way of pledge under this Part of this Act, have a first charge on the
debts assigned.
(5) The provisions of this Part of this Act shall have effect
notwithstanding anything to the contrary in any other provisions of this
Act.

Instrument of
assignment by
way of pledge
tothe Central
Bank to be free
of stamp duty.
[.67, 11 of
1963]

88B. No duty shall be chargeable or payable under the Stamp


Ordinance* on or in respect of any instrument of assignment by way of
pledge to the Central Bank under this Part of this Act, and accordingly,
for the purposes of that Ordinance, such instrument shall be deemed to
be exempt from such duty.

Instrument of
assignment by
way of pledge
tothe Central
Bank need not
be registered
under the
Registration of
Documents
Ordinance.
[.67, 11 of
1963]

88C. No instrument of assignment by way of pledge to the Central


Bank under this Part of this Act shall require registration under the
Registration of Documents Ordinance, and accordingly any such
instrument shall be deemed not to be void by reason only of its not being
so registered.

Notarial
execution not
required in the
case of
assignments by
way of pledge.
[.67, 11 of
1963]

88D. No assignment by way of pledge shall require execution


before a licensed notary public and witnesses as provided by section 2 of
the Prevention of Frauds Ordinance, and accordingly any such assignment
shall be deemed not to be void by reason only of its not being so
executed.

Medium and
long term credit
fund.
[S.67, 11 of
1966]

88E. (1 ) The Central Bank may establish, maintain, manage, and


control at the bank, a Fund to be called the Medium and Long Term
Credit Fund (in this Part of this Act referred to as the Fund).

[.3, 21 of
1968]

(2) (a) The Monetary Board may, from time to time, transfer to
the Fund, out of the reserves of the bank, such sums of money as it may
deem necessary to enable the bank to discharge its functions under this
Part of this Act.
* See also the Stamp Duty Act, No. 43 of 1982.

(7th Rev.)

MONETARY LAW

[Cap 422

45

(b) The bank may pay to the Fund the amounts of loans
granted to the bank by international financial institutions.
(3) The Central Bank shall pay out of the Fund
(a) the amounts of all loans and advances granted by the
bank to credit institutions under this Part of this Act;
(b) all sums of money representing other liabilities incurred
by the bank in the discharge of its functions under this
Part of this Act;

[.3, 21 of
1968]

(c) all sums of money which the bank may, from time to
time, decide to retransfer from the Fund to the reserves
of the bank; and

[.3, 21 of
1968]

(d) all sums of money due to international financial


institutions in repayment of loans granted to the bank by
such international financial institutions if the amounts of
such loans had been paid into the Fund.

[.3, 21 of
1968]

(4) The Central Bank shall, in addition to the sums of money


referred to in subsection (2), pay into the Fund all sums of money paid
to or recovered by the bank in repayment of the loan or advances granted
by the bank to credit institutions under this Part of this Act.

[.3, 21 of
1968]

88F. In this Part of this Act,


(a) credit institution means any banking institution as
defined in subsection (1) of section 127 of this Act and
includes the Development Finance Corporation of Ceylon
established under the Development Finance Corporation
of Ceylon Act; and

Interpritation.
[67, 11 of
1963]

(b) productive purpose means any such purpose connected


with or relating to the promotion or development of
agriculture, industry, trade, commerce or business, as may
be determined, from time to time, by the Monetary
Board.
88G. The provisions of this Part of this Act shall have effect
notwithstanding anything to the contrary in the provisions of any other
written law, and accordingly in the event of any conflict or inconsistency
between the provisions of this Part of this Act and the provisions of such
other written law, the provisions of this Part of this Act shall prevail over
the provisions of such other written law.
PART IV

This Part of this


Act to prevail
over other
written law.
[.67, 11 of
1963]

- CREDIT OPERATIONS WITH THE GOVERNMENT

89. The Central Bank may make direct provisional advances to the
Government to finance expenditures authorised to be incurred out of the
Consolidated Fund:

Provisional
advances to
the
Government.

46

Cap 422]

MONETARY LAW

(7th Rev.)

Provided that every such advance shall be repayable within a


period not exceeding six months, and the total amount of such advances
outstanding at any time shall not exceed ten per centum of the estimated
revenue of the Government for the financial year in which they are
made.
PART V
Principles
governing
open-market
operations.

- OPEN MARKET OPERATIONS

90. (1) The Central Bank shall so exercise the authority conferred
by this Part of this Act to conduct open-market operations as to secure
any of the following purposes, that is to say :
(a) to increase the liquidity or stabilize the values of the securities
referred to in section 91 in order thereby to promote private
investment in such securities; and to prevent or moderate sharp
fluctuations in the quotations of such securities, so, however, as
not to alter fundamentally movements in the market resulting
from basic changes in the pattern or level of interest rates;
(b) to increase or decrease the supply, availability, and cost of
money, in accordance with the national monetary policy as
determined by the Monetary Board.
(2) In conducting open-market operations in Government
securities, the Central Bank shall have regard to the need for maintaining
adequate holdings of short-term securities in order to enable the bank
more readily to contract its credit if such contraction becomes necessary.
(3) If the Monetary Board determines that it is necessary so to
do by reason that, in the opinion of the board, there is in progress, or has
occurred, an expansion of the money supply or of bank reserves that
represents a threat to the domestic or international monetary stability of
Sri Lanka, the board shall take action to secure
(a) that purchases of rupee securities in the open market by the
Central Bank are suspended, except in special circumstances
where the board by unanimous decision determines that such
purchases are necessary in the public interest; and
(b) that sales of rupee securities are transacted in the open-market
by the bank to such extent as market conditions permit.

Authority of
Central Bank to
transact openmarket
operations.

91. (1) in order to carry out the purposes of this Part the Central
Bank is hereby authorised
(a) to purchase and sell in the open-market securities issued
by the Government or securities fully guaranteed by the
Government; and

(7th Rev.)

MONETARY LAW

[Cap 422

47

(b) to issue, place, buy and sell freely negotiable securities


of the bank itself.
(2) The power conferred on the Central Bank by the preceding
provisions of this section shall be deemed to include the power to
purchase and sell Government securities which are denominated in
foreign currencies.
92. (1 ) Securities issued by the Central Bank shall be on such
terms and conditions and in such form as may be determined by the
Monetary Board.
(2) Any security issued by the Central Bank which is purchased
or redeemed by the bank shall not be included among its assets and shall
be immediately retired and cancelled.
PART VI

- REGULATION OF THE RESERVES OF COMMERCIAL BANKS AND


PRESCRIBED FINANCIAL INSTITUTIONS

93. (1) The Monetary Board shall, in order to limit the volume of
money created by the credit operations of the financial system, require
commercial banks and such other financial institutions operating in Sri
Lanka as may be prescribed by the Monetary Board (in this Part referred
to as the prescribed financial institutions) to maintain reserves against
their deposit liabilities and such of their other financial liabilities as the
Monetary Board may consider necessary and shall, for that purpose,
prescribe the classes of deposit liabilities and the categories of other
financial liabilities against which reserves are required to be maintained.
(2) The reserves required to be maintained by a commercial bank
or a prescribed financial institution under subsection (1), shall be
proportionate to the volumes respectively, of each class of its deposit
liabilities and each category of its other financial liabilities and shall,
subject to subsection (4), take the form of rupee deposits in the Central
Bank.
(3) The accounts maintained at the Central Bank by prescribed
financial institutions under subsection (2), shall be maintained only for
the purpose of keeping the rupee deposits required to be maintained as
reserves by such financial institutions.
(4) The Monetary Board may in the interest of the national
economy and the banking and financial systems of the country, permit
the maintenance of any part of the reserves required to be maintained
under subsection (1), in the form of assets other than rupee deposits in
the Central Bank.
(5) In this Part
financial business in relation to a financial institution means the
accepting of money in any form from the public, in the
ordinary course of business, by way of deposit or by the issue
of bills of exchange, promissory notes, bonds, certificates,
notes, commercial paper or other similar instruments by means
of which money is raised from the public, and the use of that
money, in whole or in part, for the grant of loans or making
that money available to third parties or for the benefit of third
parties, as a business;

Conditions as
to issue of
securities by
Central Bank.
Monthly
Statement.

[.19, 32 of
2002]
[.20, 32 of
2002]

48

Cap 422]

MONETARY LAW

(7th Rev.)

financial institution means a licensed specialised bank as defined


in the Banking Act, No.30 of 1988, or a finance company as
defined in the Finance Companies Act, No.78 of 1988, and
includes any person or body of persons carrying on financial
business;
other financial liabilities in relation to a licensed commercial
bank or a prescribed financial institution, means liabilities
(other than deposit liabilities) incurred by any such bank or
financial institution by the acceptance of money in any form
from the public, in the course of its business, by the issue of
bills of exchange, promissory notes, bonds, certificates, notes,
commercial paper or other similar instruments by means of
which money is raised from the public.
Monetary
Board to
prescribe
reserve ratios.
[.21, 32 of
2002]

94. (1) The Monetary Board shall prescribe, and may, from time to
time, vary, the reserve ratios applicable to each class of deposit liabilities
and each category or other financial liabilities against which reserves are
required to be maintained under Section 93.
(2) Any increase in a reserve ratio which is to be applicable in
respect of any liability that existed on the date of the increase shall be
made by the Monetary Board in a gradual manner and shall not exceed
four percentage points in any one period of thirty days.
(3) The Monetary Board shall, other than in exceptional
circumstances, endeavour to give commercial banks and other prescribed
financial institutions not less than fourteen days notice of the date on
which any increase in a reserve ratio is to become effective.

Interest on
reserves when
payable.
[.22, 32 of
2002]

95. Where any commercial bank or any prescribed financial


institution is required to maintain a reserve against any class of deposit
liabilities or any category of other financial liabilities, the Central Bank
shall, if so determined by the Monetary Board, in the interest of the
national economy and the banking and financial systems of the country,
pay to that bank or to that financial institution, as the case may be,
interest at such rate as may be determined by the Monetary Board, on the
amount maintained as a reserve or a part thereof.

Computation of
required
reserves.
[.23, 32 of
2002]

96. (1) The reserves required to be maintained by a commercial


bank or a prescribed financial institution shall be calculated on such basis
as may be prescribed by the Monetary Board.
(2) For the purposes of subsection (1), the principal office in Sri
Lanka of a commercial bank or a prescribed financial institution and the
respective branches and agencies of such bank or financial institution
shall be deemed to be one unit.

Consequnces
of reserve
deficiencies.
[.24, 32 of
2002]

97. (1) Where the reserves maintained by a commercial bank or a


prescribed financial institution are below the reserves required to be
maintained by such bank or financial institution calculated on the basis
prescribed under Section 96, the commercial bank or the prescribed
financial institution, as the case may be, shall pay to the Central Bank,
interest on the amount of the deficiency at such rate as may be
determined by the Monetary Board.

(7th Rev.)

MONETARY LAW

[Cap 422

49

(2) Where a commercial bank or a prescribed financial institution


regularly fails to maintain the reserves required to be maintained by such
bank or financial institution calculated on the basis prescribed under
Section 96, the Monetary Board may, in the interests of the national
economy, make order
(a) prohibiting or restricting the making of loans or investments by
that bank or financial institution;
(b) prohibiting the application of the whole or any specified part of
the net profits of that bank or financial institution for the
purpose of payment of a dividend to its shareholders.
98. (1) The Central Bank shall provide facilities for clearance
transactions among commercial banks operating in Sri Lanka.
(2) The deposit reserves maintained by commercial banks in the
Central Bank under this Part shall serve as a basis for the clearance of
cheques and the settlement of balances among such banks in accordance
with such rules as may be made in that behalf by the Monetary Board.
98A. (1) The Director of Bank Supervision may examine, or cause
an examiner of his department to examine the books, accounts and
records of a prescribed financial institution and may require any such
financial institution or its directors or officers to furnish from time to
time or within such periods as may be specified, such books, accounts,
records or information as may be required for the purpose of ascertaining
whether such institution is complying with the provisions of this Part.

Clearance and
settlement.
[.25, 32 of
2002]

Powers of the
Director of
Bank
Supervision.
[.26, 32 of
2002]

(2) Any person who resists or obstructs the Director of Bank


Supervision or an examiner of his department, in the exercise by such
Director or examiner, of the powers conferred on him by subsection (1)
shall be guilty of an offence.
98B. For the purposes of this Part of this Act, licensed specialized
bank shall have the same meaning as in the Banking Act, No.30 of
1988.

Interpretation
for Part VII
[.3, 9 of 2006]

PART VII-ADDITIONAL REGULATION OF CREDIT OPERATIONS OF


BANKING INSTITUTIONS

99. The powers conferred on the Monetary Board by this Part of


this Act shall be so exercised as to regulate the supply, availability, cost
and character of bank credit in accordance with the national monetary
policy as determined by the board, and to ensure that bank credit is not
granted for speculative purposes, or other purposes, prejudicial to the
public interest.

Priciples
governing
additional
regulation.

100. The Monetary Board may from time to time by order


prescribe the maximum permissible maturities for loans and investments
made by commercial banks and licensed specialized banks after the order
comes into force and the nature and amount of the security to be
permitted or required for various types of credit operations.

Maturities of
bank loans and
security
therefor.

101. (1 ) The Monetary Board may from time to time by order (a) prohibit commercial banks and licensed specialized banks
from increasing the amount of their loans and
investments; or

Limitation of
loans and
investments of
commercial
banks.

50

Cap 422]

MONETARY LAW

(7th Rev.)

(b) fix limits to the rate at which the amount of loans and
investments may be increased within specified periods; or
(c) fix the minimum percentage of loans to be extended, to
any identified sector of the economy, by the commercial
banks or licensed specialized banks:
Provided, however, that nothing in any such order shall be deemed
to require any commercial bank or licensed specialized bank to reduce
the amount of its loans and investments below the amount outstanding at
the date of the order.
(2) An order under subsection (1) may be made applicable to all
the loans and investments of each commercial bank or licensed
specialized bank or any specified class or classes of such loans and
investments so, however, that every such order shall be applicable to all
banks uniformly and without discrimination.
Minimum
capital ratios.

102. The Monetary Board may from time to time by order


prescribe the minimum ratios which the capital and surplus of
commercial banks and licensed specialized banks shall bear to the total
volume of their assets or to any specified categories of such assets.

Margin
requirements
against letters
of credit.

103. The Monetary Board may by order direct that letters of credit
shall not be opened by commercial banks unless such letters are covered
by minimum margins of such kind, amount, or proportion as may be
prescribed by the board; different margins may be so prescribed for
different classes of transactions to be financed by means of letters of
credit.

Fixing of
interest rates,
commissions
and charges.
[.3, 9 of 2006]

104. (1) The Monetary Board may from time to time make order
(a) fixing the maximum rates of interest which commercial
banks and licensed specialized banks may pay upon
various classes of deposits: or
(b) fixing the maximum rates of interest which commercial
banks and licensed specialized banks may charge for
different types of loans or other credit operations.
(2) Subject as hereinafter provided, the maximum rate of interest
fixed by order under subsection (1) shall apply in relation to any deposit,
or to any loan or credit operation, as the case may be, completed before
the date on which the order comes into force:
Provided, however, that nothing in any such order
(a) shall apply in relation to any interest accrued before that
date; or
(b) shall require or be deemed to require the reduction of the
rate of interest payable upon any deposit completed
before the date if such reduction would constitute a
breach of the contract or agreement relating to such
deposit.
(3) For the purposes of preventing evasion of any order made
under subsection (1), the Monetary Board may from time to time
prescribe the maximum rates which may be paid to or charged by
commercial banks in the form of commissions, discounts, fees or other
payments whatsoever.

(7th Rev.)

MONETARY LAW

[Cap 422

105. The Monetary Board may declare that credit instruments held
by banking institutions and licensed specialized banks will not be
accepted for discount or rediscount by, or advances from, the Central
bank, if the interest rates charged by such institutions and banks in
respect of the loans or other credit operations to which such instruments
relate exceed the interest or rediscount rates of the Central Bank by more
than such percentage or margin as may from time to time be prescribed
by the board.

51

Conditions of
eligibility of
credit
instruments for
discount, &c.,
by Central
Bank.

CHAPTER VA
THE CENTRAL BANK TO PURCHASE SHARES IN
CERTAIN COMPANIES
105A. Notwithstanding any other provision in this Act or anything
in any other written law, the Central bank may acquire and hold shares in
any company which in the opinion of the Monetary Board was formed
for the advancement and promotion of human resources and technological
development in the banking and financial sector in Sri Lanka, or to
provide for all or any of the facilities referred to in subsection (1) of
section 98 or 112A of this Act.

Central bank to
purchase share
in companies.
[.2, 26 of
1995]

CHAPTER VI
THE CENTRAL BANK AS FISCAL AGENT, BANKER, AND
FINANCIAL ADVISER OF THE GOVERNMENT
106. (1) The Central Bank shall act as the fiscal agent and banker
of the Government and of agencies or institutions acting on behalf of the
Government, whether established by any written law or otherwise.

Central Bank to
be fiscal agent
and banker of
the
Government.

(2) The Central Bank may, in addition to exercising the functions


mentioned in subsection (1), act as agent of the Government for the
purposes of any matter or transaction if it is authorised so to do by the
Minister in charge of the subject of Finance after consultation with the
Monetary Board.
107. (1) The Central bank shall be the official depository of the
Government and or agencies or institutions referrred to in subsection (1)
of section 106:
Provided, however, that the Monetary Board may authorise one or
more commercial banks operating in Sri Lanka to accept Government
deposits, subject to such rules and regulations as the board may prescribe.
(2) The monetary Board shall advise the Government regrding the
distribution of official deposits between the Central Bank and commercial
banks and the effects of such distribution on monetary conditions in Sri
Lanka.

Official
depository of
the
Government.

52

Cap 422]

MONETARY LAW

(7th Rev.)

(3) The bank shall not pay interest on deposits of the Government
or of agencies or institutions referred in subsection (1).
Loan
Guaratntees
and loan
insurance.

108. (1) The Central bank may act as agent, or for the account, of
the Government or of any of the agencies or institutions referred to in
subsection (1) of section 106, in guaranteeing, insuring, or particiapating
in the loans, or any category thereof, of banking instituions operating in
Sri Lanka.
(2) The Cental Bank may give guarantees in favour of the
Government or of any of the agencies or institutions referred to in
subsection (1) of section 106.

Guarantee of
loans to smallscale
enterprises.
[. 10, Law 37
of 1974.]

108A. (1) The Central Bank may, subject to such directions as


may from time to time be made by the Monetary Board, guarantee loans,
advances or other accommodation granted to small-scale enterprises by
credit institions operating in Sri Lanka.
(2) Where the Central Bank has prior to the date or coming into
operation of this section and acting as agent, or for the account, of the
Government, guaranteed under section 108 any loans, advances or other
accommodation granted by credit institutions to small-scale industrial
enterprises, such guarantee shall, with effect from such date, be deemed
to be a guarantee given by the Central Bank on its own account.
(3) In this section credit instituion means any banking institution
as defined in subsection (1) of section 127 of this Act, and indludes(a) the Development Finance Corporation of Ceylon established
under the Development Finance Corporation of Ceylon Act; and
(b) any such society registered under the Co-operative Societies
Law and carrying on banking business of any kind as is
approved for the purposes of this section by the Monetary
Board.

Other
Institutions as
agents of
Central Bank.

109. In the performance of its functions as fiscal agent and banker


of the Government, the Central Bank may engage the services of banks
or other institutions in places, whether in Sri Lanka or abroad, where the
Central Bank does not have offices or agencies adequately equipped to
perform such functions.

Remuneration
for services.

110. The Central Bank shall not ordinarily collect any


commissions, fees, or other charges for services which it renders to the
Government or to any agencies or institutions referred to in subsection
(1) of section 106:
Provided, however, that the Monetory Board may, in special cases,
conclude an agreement with the Minister in charge of the subject of
Finance providing for reimbursement for services the cost of which the
bank is unable to bear.

(7th Rev.)

MONETARY LAW

[Cap 422

53

111. The Central Bak may represent the Government of Sri Lanka
in any dealing, negotiations, or transactions with the International
Monetary Fund and shall carry such accounts as may result from Sri
Lankas membership in, or operations with, the fund. The Central Bank
may also be authorised by the Government to represent it in dealing,
negotiations, and transactions with foreign Governments, institutions, or
agencies, or with the International Bank for Reconstruction and
Development, or other international financial institutions and agencies.

Representation
with foreign
Governments,
agencies, and
international
institutions.

112. The issue of secutities of the Government or of any of the


agencies or institutions referred to in seubsection (1) of section 106 shall
be made through the Central Bank, shich shall act as agent, and for the
account, of the Government or of such agency or institution:

Issue of
Government
securities.

Provided, however, that except in the case of treasury Bills, for


which the Central Bank may make direct ternders, the bank shall not
subscribe to any issue of such secutities or agree to purchase the
unsubscribed portion of any such issue.
112A. The Central Bank shall provide facilities
(a) for non-commercial bank primary dealers to maintain
accounts at the Central bank for the purpose of settling
securities transactions;

Facilities for
maintenance of
accounts at the
Central Bank
and a
depository for
scripless
securities.
[.27, 32 of
2002]

(b) for direct participants including any direct participant


which are not commercial banks, to maintain accounts at
the Central Bank for the purpose of holding scripless
secutirties, clearing and settling transactions in scripless
securities among direct participants; and

[.27, 32 of
2002]

(c) for the maintenance of a depository for recording of title


to scripless securities of the Central Bank, of direct
participants and, in the case of dealer direct participants,
of their customers. The Central Bank may make such
rules and regulations as it may consider necessary in
relation to the depository.

[.27, 32 of
2002]

For the purpose of this section


dealer direct participant and direct participant shall have the
respective meanings assigned to them in the Local Treasury
Bills Ordinance and the Registered Stock and Securities
Ordinance;
non-commercial bank primary dealer means a primary dealer
who is not a commercial bank;
primary dealer shall have the meaning assigned to it in the Local
Treasury Bills Ordinance and the Registered Stock and
Securities Ordinance;
scripless securities means securities issued in scripless form; and

54

Cap 422]

MONETARY LAW

(7th Rev.)

securities means
(i) treasury bills issued in accordance with the provisions of the
Local Treasury Bills Ordinance whether isseud in scripless form
or otherwise;
(ii) registered stock or securities issued in accordance with the
provisions of the Registered Stock and Securities Ordinance
whether issued in scripless form or otherwise;
(iii) any securities of the Central bank whether issued in scripless
form or otherwise.
Any body
corporate to
privide facilities
under sections
98(1) and
112A.
[ 28, 32 of
2002]

112B. (1) Any or all of the functions referred to in subsection (1)


of section 98 and section 112A may, notwithstanding the provisions of
such section, be carried out by a body corporate authorised for the
purpose by the Monetary Board subject to such terms and conditions as
may be imposed by the Monetary Board.
(2) A body corporate referred to in subsection (1) may hold an
account with the Central Bank for the purpose of carrying out such
functions.

Management of
the public debt.

113. The Central Bank shall, as agent of the Government, be


responsible for the management of the public debt.

Advice on
Government
credit
operations.

114. No new loan shall be raised and no new issue of stock or


debentures shall be made by the Government or by any agency or
institution referred to in subsection (1) of section 106, whether in
pursuance of authority conferred by any written law or otherwise, unless
the advice of the Monetary Board has first been obtained upon the
monetary implication of the proposed loan or issue.

Recommendations
as to policy, &c.
of Government
agencies or
institutions.

115. The Monetary Board may from time to time make


recommendations to the Minister in charge of the subject of Finance or
to any agency or institution referred to in subsection (1) of section 106,
as to the measures and policies which should be adopted by such agency
or institution for the purposes of co-ordinating its policy with the policies
of the board; and where any such recommendations are made to the
Minister, the Minister or any other authority or person may, if
empowered so to do by any such other written law as may be applicable,
make or issue such orders or directions or take such other action as may
be necessary for the purpose of giving effect to such recommendations.

Monetary policy
and fiscal
policy. [.11, 37
of 1974]

116. (1) On or before the fifteenth day of September in each year


the Monetary Board shall submit to the Minister in charge of the subject
of Finance for use in preparation of the budget speech a confidential
report describing and analysing the monetary situation in Sri Lanka and
the current monetary policy of the board, and examining the effect of the
current fiscal policy of the Government upon the ability of the Central
Bank to achieve the objects specified in section 5.

(7th Rev.)

MONETARY LAW

[Cap 422

55

(2) In the event of any difference of opinion between the


Minister in charge of the subject of Finance and the Monetary Board as
to whether the monetary policy of the board is directed to the greatest
advantage of the people of Sri Lanka, the Minister in charge of the
subject of Finance and the board shall endeavour to reach agreement. If
the Minister in charge of the subject of Finance and the board are unable
to reach agreement, the Minister in charge of the subject of Finance may
inform the board that the Government accepts responsibility for the
adoption by the board of a policy in accordance with the opinion of the
Government and direct that such a policy be adopted by the board.
Where a direction is so given by the Minister in charge of the subject of
Finance, the board shall carry out that direction.

CHAPTER VII
GENERAL
*117. Save as otherwise expressly provided in this Act, the Central
Bank shall not

Business which
Central Bank
may not
transact.

(a) engage in trade or otherwise have a direct interest in any


commercial, industrial, or other undertaking except such
interest as it may in any way acquire in the course of the
satisfaction of any of its claims:
Provided that all such interests shall be disposed of at the
earliest possible opportunity; or
(b) purchase the shares of any other banking institution or of
any company, or grant loans or advances upon the
security of any such shares; or
(c) grant loans or advances on the mortgage of, or otherwise
on the security of, immovable property or documents of
title relating thereto.
118. Notwithstanding anything in any other written law
(a) the Monetary Board shall be exempt from the payment
of income tax and profits tax upon the income or profits
of the Central Bank;
(b) all goods of any description imported or purchased out of
bond by the board for the purposes of the Central Bank
shall be exempt from customs duty; and
(c) the Monetary Board shall be exempt from the payment
of stamp duty on any instrument executed by, or on
* Section 116A is repealed by Act No. 30 of 1988

Exemption from
income tax,
import duty,
and stamp
duty.

56

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MONETARY LAW

(7th Rev.)

behalf of, or in favour of the Monetary Board or the


Central Bank in cases where, but for this exemption, the
Monetary Board would be liable to pay the duty
chargeable in respect of such instrument.
Acts of
Monetary
Board valid
notwithstanding
subsequent
discovery of
disqualification.

119. All acts done at any meeting of the Monetary Board shall,
notwithstanding that it shall afterwards be discovered that there was some
defect in the appointment of any member thereof or that any such
member was disqualified, be as valid as if every such member had been
duly appointed and duly qualified.

Officers and
servants to be
deemed public
servants for
purposes of
Chapter IX of
Penal Code.

120. Every member of the Monetary Board and every officer or


servant of the Central Bank shall be deemed to be a public servant
within the meaning and for the purposes of Chapter IX of the Penal
Code.

Release of
officers and
seervants of
the Central
Bank.
[.4, 7 of 1988]

120A. The Monetary Board may, subject to the provisions of


subsection (3) of section 23, at the request of the Government or
otherwise temporarily release any officer or servant of the Central Bank
with the consent of such officer or servant to serve in any office or
position outside the Central Bank, on such terms and conditions as may
be determined by the Monetary Board.

Protection for
banking
institution.

121. Notwithstanding anything in any written or other law, no


banking institution shall be liable or subject to any action or proceedings
in any court in respect of any loss or damage suffered or incurred or
alleged to have been suffered or incurred by any person by reason of any
act or thing done or omitted to be done by such institution for the
purpose of carrying out or complying with any provision of this Act or
any rule, regulation, order, direction or requirement made or given under
this Act.

Offences and
penalties.

*122. (1 ) Any person who contravenes or fails to comply with


any provisions of this Act or any rule, regulation, order direction or
requirement made or given thereunder shall be guilty of an offence under
this Act.

[.29, 32 of
2002]

(2) Every person who is guilty of an offence by reason of the


contravention of, or failure to comply with, section 30, or section 32(2)
or section 45 or section 46 or section 50 or section 98A(2) or any rule,
regulation, order, direction or requirement made or given under section 30
or section 79(2)(c) or section 98A(1) or section 101 or section 102 shall
be liable

[.29, 32 of
2002]

(a) on conviction after summary trial before a Magistrate to


imprisonment of either description for a term not
exceeding six months or to a fine not exceeding five
hundred thousand rupees, or to both such imprisonment
and such fine; or
*Section 121A and 121B are repealed by Act No. 30 of 1988

(7th Rev.)

MONETARY LAW

[Cap 422

57

(b) on conviction before a District Court to imprisonment of


either description for a term not exceeding three years or
to a fine not exceeding one million rupees, or to both
such imprisonment and such fine.
(2A) Every person who is guilty of an offence by reason of the
contravention of subsection (1) or subsection (2) of section 58A shall be
liable on conviction after summary trial before a Magistrate to a fine not
exceeding five hundred thousand rupees or to imprisonment of either
description for a term not exceeding two years or to both such fine and
imprisonment. A Magistrate may, on conviction of any person for an
offence under subsection (1) or subsection (2) of section 58A, make order
that any coin in respect of which the offence was committed or any
metal or other article derived therefrom be forfeited to the State.

[.29, 32 of
2002]

(3) Every person who is guilty of an offence for which no


punishment is prescribed by subsection (2) or subsection (2A) shall be
liable on conviction after summary trial before a Magistrate to a fine not
exceeding one hundred thousand rupees or to imprisonment of either
description for a term not exceeding one month, or to both such fine and
such imprisonment.

[.29, 32 of
2002]

123. Where the person convicted of an offence under this Act is a


body corporate, every person who at the time of the commission of the
offence was a director or an officer of the body corporate shall be
deemed to be guilty of that offence unless he proves that the offence was
committed without his knowledge, or that he exercised all due diligence
to avoid the commission of such offence.

Offences by
corporations.

124. Nothing in the Companies Ordinance* shall apply to or in


relation to the Central Bank or the Monetary Board.

Exclusion of
application of
Companies
Ordinance.

125. In the event of any conflict or inconsistency between the


provisions of this Act and the provisions of any other written law by or
under which any banking institution is constituted or established, the
provisions of this Act shall prevail.

Provision for
conflict with
other written
law.

126. The provisions of this Act shall be in addition to, and not in
substitution or derogation of the provisions of the Defence (Finance)
Regulations, Defence (Finance No.2) Regulations, Defence (Finance
No.3) Regulations and Defence (Securities) Regulations.

Defence
(Finance)
Regulations,
&c.

127. (1) In this Act, unless the context otherwise requires

Interpritation.

appointed date means the 28th day of August, 1950;


banking institution means * Repealed and replaced by the Companies Act No. 17 of 1982

58

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MONETARY LAW

(7th Rev.)

(a) any commercial bank;


(b) any agency or institution acting on behalf of the Government
(whether established by any written law or otherwise) which
makes loans, advances or investments or accepts deposits of
money from the public;
(c) the Co-operative Federal Bank of Ceylon, Limited; and
(d) any other person or body of persons declared by the Minister
in charge of the subject of Finance, by Order published in the
Gazette, to be a banking institution for the purposes of this
Act;
commercial bank means any person or body of persons,
corporate or unincorporate, which carries on in Sri Lanka the
business of accepting from the public, or of creating, demand
deposits, but does not include the Central Bank;
current international transactions means transactions which are
not for the purpose of transferring capital, and includes,
without limitation
(i) all payments due in connection with foreign trade, other
current business, including services, and normal short-term
banking and credit facilities;
(ii) payments due as interest on loans and as net income from
other investments;
(iii) payments, of amounts not exceeding such maxima as may
be fixed by the Monetary Board, for amortisation of loans
or for depreciation of direct investments; and
(iv) remittances, of amounts not exceeding such maxima as
may be fixed by the Monetary Board, for family living
expenses;
currency, demand deposits and money supply have the
meanings assigned to those expressions by sections 48, 60 and
62 respectively.
(2) For the purposes of this Act, any question which may arise
as to whether any agency or institution is an agency or institution acting
on behalf of the Government shall be referred to the President for
decision; and such decision shall be final.

(7th Rev.)

MONETARY LAW

[Cap 422

59

CHAPTER VIII
TRANSITIONAL PROVISIONS
128. (1) The Central Bank is hereby empowered to issue any
currency notes or Ceylon coins printed or minted under the authority of
the Board of Commissioners of Currency and remaining unissued on the
appointed date.

Validity of
currency in
circulation, &c.

(2) All currency notes and Ceylon coins issued or deemed to


have been issued under the Currency Ordinance, No.21 of 1941* , prior
to the appointed date and in circulation on that date (including any such
notes or coins which have ceased to be legal tender and have not been
surrendered to the Board of Commissioners of Currency), and all
currency notes and coins issued by the Central Bank under subsection (1)
shall be deemed for all purposes to be currency notes and coins issued
by the Central Bank under this Act and to be liabilities of the Central
Bank; and the provisions of this Act shall apply accordingly to and in
relation to such currency notes and coins in like manner as they apply to
and in relation to currency notes and coins issued under this Act.
129. (1) Where any person in the service of the Government of Sri
Lanka and holding a post declared to be pensionable under the Minutes
on Pensions (hereinafter referred to as a pensionable public officer) is
appointed to be a temporary officer of the Central Bank, he shall be
deemed to have been seconded to an office to which pension rights are
not attached and accordingly section 24 of those Minutes shall apply to
him.
(2) Where a pensionable public officer is appointed to be a
permanent officer of the Central Bank on or before the appointed date, he
shall be deemed, for the purposes of the Minutes on Pensions, to
continue to hold a post declared to be pensionable under those Minutes
so long as he is in the employ of the bank, and shall be eligible for the
grant of a pension as though his service under the bank were service
under the Government, and the Minister in charge of the subject of
Public Administration may grant such pension in accordance with those
Minutes.
(3) Where a pensionable public officer, whether or not he is an
officer to whom subsection (1) applies, is appointed to be a permanent
officer of the Central Bank after the appointed date, the Minister in
charge of the subject of Finance may, by Notification published in the
Gazette, declare that the post in the service of the bank to which such
officer is appointed shall, while it is held by such officer, be deemed, for
the purposes of the Minutes on Pensions, to be a pensionable post in the
service of the Government; and upon the publication of any such
* Repealed by Act. No.58 of 1949

Appointment of
pensionable
pulic officers to
posts in Central
Bank.

60

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MONETARY LAW

(7th Rev.)

Notification, the officer referred to therein shall be eligible for the grant
of a pension as though his service under the bank were service under the
Government, and the Minister in charge of the subject of Public
Administration may grant such pension in accordance with the Minutes
on Pensions.
(4) Where a person in the employ of the Central Bank is
eligible, under the preceding provisions of this section, for the grant of a
pension in accordance with the Minutes on Pensions, he shall,
notwithstanding anything in the Widows and Orphans Pension Fund
Ordinance, be deemed, so long as he remains in such employ, to be a
public officer within the meaning, and for the purposes of the application,
of that Ordinance.
Contributions
by Central
Bank in respect
of pensionable
public officers
appointed to
posts in the
bank.

130. (1) In respect of every such officer in the employ of the


Central Bank as is eligible, under subsection (2) or subsection (3) of
section 129, for the grant of a pension in accordance with the Minutes on
Pensions and is deemed, under subsection (4) of that section, to be a
public officer within the meaning, and for the purposes of the application,
of the Widows and Orphans Pension Fund Ordinance, the banks shall
contribute out of the funds of the bank to the Consolidated Fund, in
respect of every complete month during which that officer is in the
employ of the Bank
(a) such sum not exceeding twenty-two per centum of the
highest monthly salary received by that officer in his
substantive post in the service of the Government or the
bank as the Minister in charge of the subject of Public
Administration may from - time to time determine, and
(b) a sum equivalent to three per centum of the salary of
that officer for that month.
(2) In subsection (1) salary means the emoluments of the
pensionable appointment held by the officer exclusive of allowances other
than personal allowances
(3) The Central Bank shall pay the contributions under
subsection (1) annually to the Treasury on or before such date as may be
fixed by the Deputy Secretary to the Treasury.

MONETARY LAW ACT


RULES & REGULATIONS

(7th Rev.)

MONETARY LAW

[Cap 422

63

MONETARY LAW ACT


SECTION 10 (C)
REGULATION A
HOURS

OF

BUSINESS

1. The Central Bank of Sri Lanka shall be open for banking business
(a)

on any day, other than a Saturday, Sunday, Monday or bank holiday,


between 0900 hours and 1330 hours;

(b)

on any day, not being a bank holiday, which is a Monday between


0900 hours and 1300 hours.

2. In this regulation, bank holiday means any day declared to be a bank


holiday by or under the Holidays Act, No. 29 of 1971.

REGULATION B
SERVICE

OF

NOTICES, & C.

Any communication, notice, order, circular or other document may be served by


post by registered letter on any banking institution, and if so served, shall be deemed to
have been served at the time when the letter containing the same would be delivered in
the ordinary course of post, and in proving such service, it shall be sufficient to prove
that the communication, notice, order, circular or other document was properly addressed
and put into the post.

SECTION 26
REGULATION C
AUTHORITY

TO

OBTAIN INFORMATION

1. The Director of Economic Research or any officer of the Department of


Economic Research authorized in that behalf by the Director may exercise the powers
conferred on him by section 26(1) of the Monetary Law Act by notice in writing under
his hand. The notice shall specify the time within which the requirements thereof shall
be complied with.

64

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MONETARY LAW

(7th Rev.)

2. In this regulation
(a)

the expression Director of Economic Research means the head of the


Department of Economic Research; and

(b)

the expression Department of Economic Research means the


Department of Economic Research established and maintained by the
Central Bank under the Monetary Law Act.

REGULATION D
RESERVE REQUIREMENTS
804/16 of 3.2.1994
958/1 of 13.1.1997
958/3 of 25.3.1997
1092/24 of 12.8.1999
1143/12 of 1.8.2000
1206/18 of 17.10.2001
1280/7 of 20.3.2003
1. In terms of the provisions of Section 93 of the Monetary Law Act,
commercial banks operating in Sri Lanka shall maintain reserves against all deposit
liabilities denominated in Sri Lanka rupees.
2.

(i)

In terms of the provisions of Section 94 of the Monetary Law Act, the


reserves required to be held by commercial banks against their deposit
liabilities specified in Regulation 1 above shall be an amount equal to
10 per centum of the total of such deposit liabilities.

(ii)

The reserves required to be held by a commercial bank against the


deposit liabilities specified in Regulation 1 above shall take the form of
Rupee deposits in the Central Bank provided that an amount over and
above two per centum of the average of rupee deposit liabilities
specified in Regulation 3 below but not exceeding four per centum
thereof may be maintained as a part of its required reserves in the form
of Sri Lanka Currency notes and coins held by such bank as its assets.

3. The computation of the reserves required to be maintained by a commercial


bank shall be made each Thursday on the basis of the daily average of rupee deposit
liabilities at the close of the business on each day of the week ending the preceding
Tuesday. The reserves permitted to be maintained by way of Sri Lanka currency notes
and coins held by a commercial bank shall be the average of the holdings at the end of
each day of such week.
4. The reserves computed as specified in Regulation 3 above shall be
maintained as an average for the week commencing the Friday following the day of

(7th Rev.)

MONETARY LAW

[Cap 422

65

computation to Thursday of the following week. Such average shall be


calculated based on the balances at the close of business on each day of such week.
5. Interest at the rate of one tenth of one per centum per day shall be paid by a
commercial bank to the Central Bank on any deficiency in reserves. Such interest shall
be paid not later than the Friday next following the Thursday on which such required
reserves were computed under Section 96 of the Act.
6. A notice issued under the hand of the Director, Domestic Operations or any
officer authorized by him in that behalf, stating
(a)

That the reserves of such commercial banks are below the amount of
the required reserves;

(b)

The week in respect of which there was a deficiency of such reserve;

(c)

The amount of such deficiency; and

(d)

The amount of interest payable on the amount of the deficiency shall be


deemed to be sufficient notice to such bank of the interest due from
such bank.

7. Every commercial bank shall not later than 12 noon on each Thursday
furnish to the Director, Domestic Operations, Central Bank of Sri Lanka, a return
substantially in the form prescribed in the Schedule A hereto.
8. These Regulations shall come in to force on 03 April 2003, upon which the
Regulation D published in the Sri Lanka Government Gazette Extraordinary, No. 804/16
of 3rd February 1994, as amended from time to time shall cease to have any force or
effect.
In this regulation unless the context otherwise requires
Deposit Liabilities shall mean all those liabilities of a commercial bank being
demand deposits, special deposits, savings deposits, time deposits, placements
made by any institution other than a commercial bank in the inter-bank callmoney market, margins against letter of credit and special deposit schemes if
any, such as pension funds, childrens deposit schemes and other schemes of a
similar nature, and assets held in trust or on behalf of its constituents
consequent to deposits made by the denominated in Sri Lanka currency, but
does not include inter-commercial bank deposits.
Demand Deposits shall mean all those deposit liabilities of a commercial bank
which are denominated in Sri Lanka Rupees, subject to payment in legal
tender upon demand by cheque, draft or order; but does not include any such
liability if it is subject to payment upon conditions.
Special Deposits shall means all those deposit liabilities of a commercial bank
arising out of monies deposited in any special account under Section 10 of the
Inland Revenue Act, No. 28 of 1979.

66

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MONETARY LAW

(7th Rev.)

Savings Deposits shall mean all deposit liabilities denominated in Sri Lanka
currency other than demand deposits, time deposits and special deposits as
defined above.
Time Deposits shall mean all deposit liabilities denominated in Sri Lanka
currency accepted for a period of maturity and not withdrawable on demand
and repaid with interest.

SCHEDULE A
FORM

OF

REPORT

WEEKLY REPORT OF DAILY AVERAGE DEPOSIT LIABILITIES

(RUPEE DEPOSIT LIABILITIES)


Name of Bank : .........................................................
For the week from Wednesday (.........................) to Tuesday (.............................)
(date)
(date)
To: Director,
Domestic Operations Department,
Central Bank of Sri Lanka,
Colombo 01.
The average amounts of deposit liabilities reported below are based on the deposit
balances shown by the books of the Bank at the close of business of the seven days of
the week specified above.
(i)
Demand
Deposits

(ii)
Time Deposits and
Savings Deposits

(iii)
All other deposit liabilities
(including special deposits,
margins against letters of
credit, etc.)*1

(iv)
Total

*1 In the case of Certificate of Deposit the amount declared should be the paid up
value.

(7th Rev.)

MONETARY LAW

[Cap 422

67

Required Reserves
For week commencing Friday,
1. ............................................... % of Rs.
(Daily Average of total Rupee Deposit Liabilities)

Rs.

2. Average of Sri Lanka Currency Notes and Coins held over and
above 2% of average deposit liabilities, but not exceeding 4%

Rs.

3. Total Reserves required to be held on deposit


with the Central Bank (1-2)

Rs.

We / I hereby certify that the above statement is correct and is in accordance with
the books of this bank and that the figures shown above are in accordance with the
regulations prescribed by the Monetary Board of the Central Bank of Sri Lanka for the
purpose.
Date:

....................................................
Official Signature

Note (a) Demand deposits are the total of credit balances in current accounts without
deducting debit balances in respect of overdraft allowed.
(b) Deposits and placements made by National Development Bank, DFCC
bank, National Savings Bank, other Financial Institutions and E.P.F. should
be accounted for maintenance of required reserves at prescribed ratios.
(c) All amounts should be shown to the nearest rupee.

* Pages 68 to 71 are deleted pursuant to amendments to Regulation D.

72

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MONETARY LAW

(7th Rev.)

SECTION 56
REGULATION E
REPLACEMENT
Definition.

1.

OF

UNFIT CURRENCY

In this regulation unless the context otherwise requires

altered note means a note in which an alteration has been


made in the number, date, signature or value or in any other
respect;
authorized officer means any officer authorized in that
behalf by the Governor;
half note means one half of a note which has been divided
vertically, horizontally or diagonally through or near the
centre;
mismatched note means an imperfect note formed by joining
a half note of one note to a half note of another note;
mutilated note means a portion of a note (being a note the
other portion of which is missing) which is clearly more
than a half note and each part of which, if it consists of
parts of a note joined together, is identifiable as part of the
same note;
note means a currency note of the Central Bank, including a
currency note issued or deemed to be issued by the Board
of Commissioners of Currency under Ordinance No.21 of
1941;
number includes the letters of the series to which the note
belongs;
obliterated note means a note, not being a mutilated or
altered note, of which a portion has become or has been
rendered undecipherable.
Time limit to
claims.

2. No claim for the refund of the value of a damaged or


mutilated note will be entertained unless such claim is made within a
period of twelve months reckoned from the date when it might first
have been made.

Value limit
to claims.

3. No claim in respect of a half note or a mismatched note


shall be entertained unless such half note or each of the half notes

* Pages 68 and 71 are deleted. See foot note in page 67.

(7th Rev.)

MONETARY LAW

[Cap 422

73

comprising the mismatched note is part of a note of which the


denomination exceeds two rupees.
4. A claim for the value of a half note shall be rejected
unless the number of the note is identified on the half note and such
half note is entire and has not been divided and rejoined.

Half notes to
be entire.

5. A claim for the value of a mutilated note of a


denomination not exceeding ten rupees shall be rejected unless in
the opinion of the authorized officer the portion tendered is at least
three quarters of the whole note and if made up of two or more
pieces, such pieces belong to one and the same note.

Claims
concerning
mutilated notes
of less than ten
rupees.

6. A claim for the value of a genuine mutilated or damaged


note of a denomination exceeding ten rupees may be accepted if the
number of the note can be identified with certainty by the authorized
officer as one of not more than two numbers:

Claims
concerning
mutilated notes
of more than
ten rupees.

Provided that the authorized officer may, with the Approval of the
Governor or Deputy Governor of the Central Bank, pay the value of
any mutilated or damaged note in a case where the Governor or
Deputy Governor is satisfied that the note tendered is a genuine one.
7. Where a claim for the value of a mutilated note is rejected
under paragraph 5 or paragraph 6 of this regulation the note shall be
stamped with the words PAYMENT REFUSED and dated before it
is returned to the claimant.

Stamping of
mutilated
notes.

8. A claim in respect of an obliterated note or half note shall


not be entertained unless the authorized officer is satisfied as to
identity of such note or half note.

Obliterated
notes.

9. No claim in respect of an altered note shall be entertained.


The authorized officer shall retain every altered note tendered for
payment, whether or not the alteration has been made with intent to
defraud, and may in addition require every tenderer of an altered
note to state in writing the circumstances in which such altered note
came into his possession.

Altered notes.

10. No claim in respect of a wilfully mutilated note shall be


entertained by the authorized officer. If there are clear indications of
wilful mutilation, the authorized officer shall retain the note and in
addition require every tenderer of a wilfully mutilated note to state
in writing the circumstances in which such note came into his
possession.

Claim in
respect of
wilfully
mutilated
notes.

11. A claim for half the value of a note of the denomination


of Rs. 50 and above, of which a half note only is presented, shall be
entertained if the authorized officer is satisfied that a claim in

Claims for half


value of notes
exceeding
rupees 10.

74

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MONETARY LAW

(7th Rev.)

respect of a note of the corresponding number and denomination has


not been entertained earlier and that the note remains unpaid, or if
entertained earlier, that only half value had been paid on that
occasion.
Claim for full
value notes
exceeding
Rs.10.

12. (1) A claim for the full value of a note of the


denomination of Rs.50 and above
(i)
(ii)

when only a half note is tendered; or


when the portion tendered is less than a half
note but contains one number which can be
identified beyond doubt;

shall be accompanied by a statement, signed by the claimant, that he


was the last lawful holder of the entire note and also briefly
detailing the circumstances in which the loss or destruction of the
missing portion of the note took place.
(2) If full value of the note has already been paid the claim
shall be rejected.
(3) If half the value of the note has already been paid the
authorized officer may order half the value of the note to be paid.
(4) If another claim has been received and is under
investigation, the authorized officer may order that one claimant be
paid the full value of the note, or that each claimant be paid half the
value of the note or that both claims be rejected.
(5) If the authorized officer is not satisfied that the counterpart of the section of the note tendered has been lost or destroyed in
such circumstances that there is no probability of its being presented
at some future date, he may order half the value of the note to be
paid or reject the claim.
(6) If the authorized officer is satisfied that the counterpart
of the section of the note tendered has been lost or destroyed in
such circumstances that there is no probability of its being presented
at some future date, he may order that full value be paid on the
claimant furnishing an indemnity bond with two sureties in the form
prescribed in the Schedule hereto.
Notes to be
retained by
Central Bank.

13. Save as otherwise provided in this regulation, any note


presented in prosecution of a claim shall be retained by the Central
Bank whatever be the decision on the claim.

(7th Rev.)

MONETARY LAW

[Cap 422

14. Notwithstanding anything in any other provision of this


regulation, the value of damaged or mutilated currency notes are
refunded as an act of grace and no holder shall be entitled as of
right to claim the value of any damaged or mutilated currency note.

75

Payment of
value of
damaged notes
as matter of
grace.

76

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MONETARY LAW

(7th Rev.)

SCHEDULE
FORM OF INDEMNITY BOND
KNOW ALL MEN BY THESE PRESENTS THAT WE,

principal, and and


Sureties, are held and firmly bound unto the Central Bank of Sri Lanka in the sum
of Rupees
Lawful money of Sri Lanka, to be paid to the Central Bank of Sri Lanka; for
which payment to be well and truly made we bind ourselves, our heirs, executors,
administrators and representatives; and every two of us bind ourselves, our heirs,
executors, administrators and representatives, jointly, and each of us binds himself,
his heirs, executors, administrators, and representatives, severally, firmly by these
presents, hereby renouncing the beneficium ordinis divisionis et excussionis, and
all privileges to which sureties as such are by law entitled.

Witnesses :

Signed by us, and dated the day of ..19.


WHEREAS the above-bounden alleges that he
is the holder of the following Currency Note, to wit :
AND WHEREAS the said Currency Note has been
mutilated and defaced and the said has applied to
the Central Bank of Sri Lanka for payment of the amount of the said Note, and
the Central Bank of Sri Lanka, has acceded to the said Application on condition of
the said and two sufficient Sureties executing such
Obligation as above written, and the said have
accordingly as such Sureties agreed to execute the said Obligation with such
condition as hereunder is written and whereas the stamp duty on these presents is
not payable by virtue of section 118(c) of the Monetary Law Act.
NOW the condition of the above-written Obligation is such, that if the
above-bounded, their heirs, executors, administrators, or representatives, shall from
time to time and at all times hereafter keep harmless and indemnify the Central

(7th Rev.)

MONETARY LAW

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77

Bank of Sri Lanka, and all and every the officers and servants of the Central
Bank, from and against all actions, suits and other legal proceedings which shall
be brought against the Central Bank of Sri Lanka or any of the officers or
servants of the Central Bank, or in which he or they respectively may become
involved, and also against all costs, damages, and expenses which by him or them
respectively shall be sustained, or have to be paid at any time in respect of the
said Currency Note, any of them or the payment of the money hereby secured, or
any part thereof, then the above-written Obligation shall be void, otherwise the
same shall remain in full force and virtue. Provided and it is hereby agreed by
the said with the Central Bank of Sri Lanka, that
in the defence and prosecution of any action, suit or other legal proceeding
preferred to in the foregoing clause for indemnity, or maintained in virtue thereof,
the Central Bank of Sri Lanka shall not be responsible or accountable to the said
or any of them, or any or either of their heirs,
executors, administrators, or representatives, for any act, omission, or mistake, and
that in the defence or prosecution of such action, suit, or other legal proceeding
the Central Bank of Sri Lanka and its officers and servants, shall be required to
do such acts and taken such steps only as shall be required to do such acts and
taken such steps only as shall in that behalf be approved or advised by the
Attorney-General, or the person executing the duties of that Officer for the time
being.

In witness whereof we have hereunto set our hand and seals at


this, day of in the
Year of Our Lord One Thousand Nine Hundred and
.

Witness :

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SECTION 98
REGULATION F
S ETTLEMENT

OF

BALANCES

The deposit reserves maintained by each commercial bank in the Central


Bank shall, upon each settlement of balances under section 98 of the Monetary
Law Act, be credited or debited with the amount of the balance according as it is
to the credit or the debit of that bank.
The procedure applicable for the purposes of the settlement of balances shall
from time to time be notified by the Central Bank to each commercial bank by
circular.

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MONETARY LAW ACT


SECTION 32 (E)
REGULATIONS
1. These regulations may be cited as the Deposit Insurance Scheme
Regulations, No.1 of 1987.
2. Every application to insure deposits made in terms of section 32 B of
the Act by any banking institution or any society registered under the Co-operative
Societies Law, No.5 of 1972 hereinafter referred to as a Society and carrying on
banking business of any kind shall be in such form and in such manner as may be
specified by the Central Bank.
3. On receipt of an application in terms of regulation 2, the Director of
Bank Supervision shall examine or cause an officer of his department to examine
in such manner as may be determined by him, the books and accounts of the
banking institution or society, which made the application and having satisfied
himself that
(a) in the case of a banking institution that such banking institution
has adequate assets to enable it to meet all its liabilities; and
(b) in the case of a society that such society has assets segregated and
earmarked for the purpose of meeting its deposit liabilities and that
such assets are adequate to enable it to meet its deposit liabilities,
shall make a report to the Monetary Board, recommending the application. Where
the Director of Bank Supervision is of the opinion that such institution or society
would not be able to meet its liabilities, he shall make a report to the Monetary
Board accordingly.
4. Every banking institution and every society whose application has been
accepted by the Monetary Board shall be registered as an insured bank or insured
society as the case may be, with effect from the first day of the quarter following
the quarter in which the application is accepted and the deposits held by such
banking institution or society shall be insured with effect from that date.
5. The Director of Bank Supervision shall within 60 days of accepting an
application in terms of regulation 4 inform the banking institution or society
concerned in writing that its application has been so accepted by the Monetary
Board and the date on which its registration as an insured bank or insured society,
as the case may be, shall become effective.
6. Every insured bank and every insured society shall be liable to pay to
the Central Bank a premium on its deposits in respect of each of the quarters in
each calendar year at the rate prescribed in regulation 7. Such premium shall be

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payable in respect of the deposits of such insured bank or such insured society as
at the close of business on the last working day of each such quarter. The
premium shall be paid in advance on the basis of the deposits of such insured
bank or such insured society as at the close of business on the last working day of
the preceding quarter, and if the premium in respect of the relevant quarter is
greater or less than the advance payment made on account of such premium, the
shortfall, if any, shall be added to and the excess, if any, shall be deducted from
the advance payment made on account of the premium in respect of the
succeeding quarter :
Provided that such insured bank or insured society shall not be liable to
make any payment to the Central Bank in terms of this regulation in respect of the
premium for the quarter in which its deposits ceased to be insured (apart from the
advance payment required to be made on account of such premium) where such
insured bank or insured society has been ordered to be wound up under any law.
Gazette
Extraordinary
of 14.11.1991

7. The premium payable by every insured bank and every insured


society in respect of each quarter shall with effect from 1st January,
1992, be three point seven five (3.75) cents for every hundred rupees
of its deposits as at close of business on the last working day of
such quarter.

8. Every insured bank and every insured society shall within the first
month of each quarter forward to the Director of Bank Supervision a statement in
duplicate certified as correct by its chief executive officer or any other officer
authorized by him in that behalf showing, inter alia, its deposits as at the close of
business on the last working day of the preceding quarter, and the premium
payable in respect of such preceding quarter.
9. If an insured bank or an insured society makes any default in any
payment due to the Central Bank in terms of regulation 6 on account of the
premium in respect of any quarter, it shall be liable to pay to the Central Bank
interest at the rate of 24 per cent per annum on the amount of such premium for
the period of such default.
10. (1) No insured bank shall alter, amend or revise in any way its
Memorandum of Association or its Articles of Association without the consent in
writing of the Governor.
(2) No insured society shall alter, amend or revise its by-laws without the
consent in writing of the Governor.
(3) No insured society shall take any action in terms of section 9 of the
Co-operative Societies Law, No.5 of 1972 without the consent in writing of the
Monetary Board.
11. (1) Where an insured bank or an insured society has been ordered to
be wound up or to be taken into liquidation and a liquidator has been appointed in
respect thereof, such liquidator shall within two months from the date of his

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81

appointment as liquidator, furnish to the Director of Bank Supervision a list of


depositors showing the original amount in relation to each depositor and such
other information in respect of each depositor as may be called for by the Director
of Bank Supervision.
(2) The Central Bank shall within one month from the date of the receipt
of the list of depositors, furnished by the liquidator in terms of paragraph (1) of
this regulation pay to such liquidator the original amount or Rs.100,000 whichever
is less in respect of each depositor.
(3) Where the Central Bank has made a payment of any amount to a
liquidator in respect of any depositor in terms of paragraph (2) of this regulation,
such liquidator shall pay such amount to such depositor within one month from
the date of receipt of such payment from the Central Bank and any expenses
incurred by such liquidator in making such payment may be reimbursed by the
Central Bank at the discretion of the Monetary Board.
Provided that where any depositor to whom any payment is to be made in
terms of this regulation, cannot be found or is not readily traceable, the liquidator
shall within one month from the date of receiving payment from the Central Bank
in terms of paragraph (2) of this regulation, repay to the Central Bank the amount
received from the Central Bank in respect of such depositor and adequate
provision shall be made by the Central Bank of the eventual payment of such
amount to such depositor.
12. Where payment of any amount has been made in terms of regulation
11 (2) by the Central Bank to a liquidator or in terms of regulation 11 (3) by a
liquidator to a depositor, the liquidator shall be liable to pay to the Central Bank
such sum or sums as make up such amount and he shall make payment to the
Central Bank to such extent as may be possible as and when the realisations and
other amounts in his hands after making provision for the expenses payable by
that time, are sufficient to enable him to declare a dividend of not less than one
cent in the rupee.
13. (1) An insured bank or insured society may, at any time, notify the
Monetary Board in writing of its intention to cease to be an insured bank or an
insured society, as the case may be, and the deposits of such insured bank or an
insured society shall cease to be insured after four quarters have lapsed following
the quarter in which the Director of Bank Supervision receives such information.
(2) The Monetary Board shall within one month from the date of receipt of
a notification given in terms of paragraph (1) of this regulation, inform the insured
bank or insured society concerned of the receipt of such notification and also
publish in the Gazette a notice in such form as the Monetary Board may
determine stating that such insured bank or such insured society has notified the
Monetary Board of its intention to cease to be an insured bank or an insured
society, as the case may be, and indicating the date with effect from which the
deposits of such insured bank or insured society will cease to be insured. The
Monetary Board shall also give publicity to such notice by advertisement in the
newspapers or by such other means as it may consider suitable.

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(3) Where an insured bank or insured society has been informed by the
Monetary Board in terms of paragraph (2) of this regulation that a notification
given by such insured bank or such insured society under paragraph (1) of this
regulation has been received, such insured bank or such insured society shall
inform each of its depositors in writing of its intention to cease to be an insured
bank or an insured society, as the case may be, stating also the date, with effect
from which its deposits will cease to be insured. A letter to this effect despatched
by registered post to each depositor at the last address of such depositor on record
in the books of such insured bank or insured society shall be deemed to be
compliance with the foregoing requirement.
(4) Where the deposits of a banking institution or a society have ceased to
be insured in terms of paragraph (1) of this regulation, such banking institution or
such society shall be liable to pay to the Central Bank within one month from the
date on which its deposits cease to be insured, the balance amount if any, payable
on account of the premium in respect of the last quarter on which the deposits
were insured, and such insured bank or insured society shall at the time of making
such payment, also furnish to the Director of Bank Supervision, a statement in
duplicate in terms of regulation 8.
14.

In these regulations

deposit mean the aggregate of the rupee balances due to any person other
than the Government of Sri Lanka, any foreign government, any local
authority, Public Corporation or banking institution or society in the same
capacity and in the same right, in respect of all his accounts by whatever
name called with a banking institution or a society;
depositor means any person other than the Government of Sri Lanka any
foreign government, any local authority, Public Corporation, banking
institution or society, for whom a rupee deposit account is maintained by
a banking institution or a society;
Director of Bank Supervision includes an Additional Director of Bank
Supervision and an Acting Director of Bank Supervision;
original amount in relation to a depositor means the amount which shall
be obtained by deducting from his rupee deposit at the time the deposit
of the insured bank or the insured society concerned ceased to be insured
the total amount which an insured bank or insured society may at the
same time be legally entitled to claim by way of set-off from such
depositor in the same capacity and in the same right; and
quarter in relation to any calendar year means any of the periods
beginning on the first day of January and ending on the thirty-first day
of March; beginning on the first day of April and ending on the thirtieth
day of June; beginning on the first day of July and ending on the
thirtieth day of September; beginning on the first day of October and
ending on the thirtyfirst day of December.
Made this 27th February, 1987

(7th Rev.)

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83

MONETARY LAW ACT


SECTION 10 (C) READ WITH SECTION 112A(C)
REGULATIONS
1331/8 of 9.3.2004
1348/11 of 20.3.2004
1. These regulations may be cited as the Sri Lanka Real Time Gross
Settlement (RTGS) and Central Depository Regulations No. 1 of 2004. These
regulations shall be deemed to have come into operation on January 30, 2004.
2. (1) A System which shall in these regulations be referred to as
LankaSettle, is hereby established for the purpose of Section 112 A (c) of the
Monetary Law Act (Chapter 422).
(2) LankaSettle shall comprise a facility for the processing and settlement
of payments electronically on a gross basis in real-time (hereinafter referred to as
RTGS), and a facility to electronically issue Scripless Securities, store holdings
of and to record ownership and interests in such Scripless Securities and to settle
transactions in Scripless Securities (hereinafter referred to as LankaSecure).
3.

(1)

Any person other than the Central Bank, being


(a)

a licensed commercial bank or a primary dealer or any other


person appointed as a direct participant under the Registered
Stock and Securities Ordinance or the Local Treasury Bills
Ordinance ; or

(b)

a person having a settlement account with the Central Bank,

who has entered into an Accession Agreement in the specified form with the
Central Bank shall be eligible to participate on LankaSettle.
(2) The Central Bank may having regard to the legally permissible
activities of a participant or categories of participants in terms of the Act, restrict
the availability of facilities and functions of LankaSettle in relation to such
participant or categories of participants, as the case may be.
4. Every participant shall in addition comply with the rules for the
operation of the system made from time to time by the Central Bank in terms of
Section 62 A of the Monetary Law Act (hereinafter referred to as the System
Rules), with respect to participation by the participants on LankaSettle and for
matters connected therewith or incidental thereto.
5. (1) Every participant shall maintain a Securities Account in
LankaSecure in the manner set out herein.

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(2) The Securities Accounts referred to in paragraph (1) may be of any of


the types of accounts as are set out hereunder :
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)

Own Account ;
Customer Accounts ;
Pledge Account ;
Tradable Repurchase Account ;
Non-Tradable Repurchase Account ;
Tradable Customer Reverse Repurchase Account ;
Non-Tradable Customer Reverse Repurchase Account ;
Primary Auction Purchase Account ;
ILF Account ;
Statutory Investment Account ;
Domestic Operations Repurchase Account ;
Domestic Operations Reverse Repurchase Account ; and
Trust Accounts.

(3) Subject to the provisions of regulation 7 the title to and interest in


scripless securities in each such type of account specified in paragraph (2) shall
vest in the following manner :
(a)

Own Account:
Own Accounts shall be maintained by the Participants and by
the Central Bank. A Participant shall have title to Scripless
Securities in the Participants Own Account. The Central Bank
shall have title to Scripless Securities in the Central Banks Own
Account.

(b)

Customer Account:
Customer Accounts shall be maintained by every dealer direct
participant for each of its customers to record such customers
title to Scripless Securities. The relevant customer shall be
recorded as the owner of Scripless Securities in each Customer
Account and shall have title to such Scripless Securities.

(c)

Pledge Account:
A Pledge Account shall be maintained by a participant to record
Scripless Securities pledged to such participant, and in the case
of a participant who is a dealer direct participant, to record
Scripless Securities pledged to its customers. Pledges in
Scripless Securities shall be created, and ownership to and
pledge interests in such securities shall be recorded as provided
for in regulations issued under the Registered Stock and
Securities Ordinance or the Local Treasury Bills Ordinance.
Scripless Securities in a Pledge Account shall not be tradable
except as provided for in such regulations.

(d)

Tradable Repurchase Account:


A Tradable Repurchase Account shall be maintained by a
participant to record Scripless Securities that are transferred to

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such participant, under a repurchase or reverse repurchase


agreement entered into by such participant in accordance with
regulations made under the Registered Stock and Securities
Ordinance or the Local Treasury Bills Ordinance in terms of
which agreement such participant is required to return such
Scripless Securities at a future date to the counterparty and which
Scripless Securities may, subject to that agreement, be traded.
Such participant shall be recorded in the relevant Tradable
Repurchase Account as the owner of Scripless Securities in such
account and shall have title to such securities. The recording of
Scripless Securities in a Tradable Repurchase Account shall be
evidence that such securities are subject to a repurchase or
reverse repurchase agreement.
(e)

Non-Tradable Repurchase Account:


A Non-Tradable Repurchase Account shall be maintained by a
direct participant to record Scripless Securities that are transferred
to such participant, under a repurchase or reverse repurchase
agreement entered into by such direct participant in accordance
with regulations made under the Registered Stock and Securities
Ordinance or the Local Treasury Bills Ordinance in terms of
which agreement such direct participant is required to return such
Scripless Securities at a future date to the counterparty and which
Scripless Securities may not be traded. Such direct participant
shall be recorded in the relevant Non-Tradable Repurchase
Account as the owner of Scripless Securities in such account and
shall have title to such securities. The recording of Scripless
Securities in a Non-Tradable Repurchase Account shall be
evidence that such securities are subject to a repurchase or
reverse repurchase agreement.

(f)

Tradable Customer Reverse Repurchase Account:


A Tradable Customer Reverse Repurchase Account shall be
maintained by a Dealer Direct Participant to record Scripless
Securities that are transferred to a customer under a repurchase or
reverse repurchase agreement entered into by such customer with
a counterparty in accordance with regulations made under the
Registered Stock and Securities Ordinance or the Local Treasury
Bills Ordinance in terms of which agreement such customer is
required to return such Scripless Securities at a future date to the
counterparty and which Scripless Securities may, subject to such
agreement, be traded. Such customer shall be recorded in the
relevant Tradable Customer Reverse Repurchase Account as
owner of Scripless Securities in such account and shall have title
to such securities. The recording of Scripless Securities in a
Tradable Customer Reverse Repurchase Account shall be evidence
that such securities are subject to a repurchase or reverse
repurchase agreement.

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MONETARY LAW

(7th Rev.)

Non-Tradable Customer Reverse Repurchase Account:


A Non-Tradable Customer Reverse Repurchase Account shall be
maintained by a Dealer Direct Participant to record Scripless
Securities that are transferred to a customer under a repurchase or
reverse repurchase agreement entered into by such customer with
a counterparty in accordance with the regulations made under the
Registered Stock and Securities Ordinance or the Local Treasury
Bills Ordinance in terms of which agreement such customer is
required to return such Scripless Securities at a future date to the
counterparty and which Scripless Securities may not be traded.
Such customer shall be recorded in the relevant Non-Tradable
Customer Reverse Repurchase Account as owner of Scripless
Securities in such account and shall have title to such securities.
The recording of Scripless Securities in a Non-Tradable Customer
Reverse Repurchase Account shall be evidence that such
securities are subject to a repurchase or reverse repurchase
agreement.

(h)

Primary Auction Purchase Account:


A Primary Auction Purchase Account shall be maintained by
every participant who is a primary dealer or a designated nondealer bidder to record Scripless Securities that are purchased by
it at the primary auction. The title to Scripless Securities in a
Primary Auction Purchase Account shall vest in the primary
dealer or designated non-dealer bidder, as the case may be.

(i)

ILF Account:
An ILF Account shall be maintained by every participant who is
eligible for ILF (hereinafter referred to as the Participants ILF
Account) and by the Central Bank (hereinafter referred to as the
Central Banks ILF Account). A Participants ILF Account shall
hold Scripless Securities available for transfer to the Central Bank
for the purpose of obtaining Infra-Day Liquidity from the Central
Bank in terms of an ILF Agreement. The participant shall have
title to such Scripless Securities. The Central Banks ILF Account
shall hold Scripless Securities transferred to the Central Bank
from a Participants ILF Account as security for Intra-Day
Liquidity. The Central Bank shall have title to the Scripless
Securities in such account.

(j)

Statutory Investment Account:


A Statutory Investment Account shall be maintained by a
participant to hold Scripless Securities to meet any requirement
imposed on such participant by any written law. The participant
shall have title to Scripless Securities in such account subject to
the provisions of such written law.

(k)

Domestic Operations Repurchase Account:


A Domestic Operations Repurchase Account shall be maintained
by a participant to hold Scripless Securities that are transferred to

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the participant by the Central Bank under the Master Repurchase


and Reverse Repurchase Agreement between the Central Bank
and the participant in terms of which the Scripless Securities have
to be returned to the Central Bank by the participant at a future
date. The participant maintaining such account shall have title to
the Scripless Securities in such account. Scripless Securities in a
Domestic Operations Repurchase Account shall not be tradable.
(l)

Domestic Operations Reverse Repurchase Account:


A Domestic Operations Reverse Repurchase Account shall be
maintained by the Central Bank to hold Scripless Securities that
are transferred by a participant to the Central Bank under the
Master Repurchase and Reverse Repurchase Agreement between
the Central Bank and the participant in terms of which the
Scripless Securities have to be returned by the Central Bank to
the participant at a future date. The Central Bank shall have title
to such Scripless Securities. Scripless Securities in a Domestic
Operations Reverse Repurchase Account shall not be tradable.

(m)

Trust Accounts:
A Trust Account shall be maintained by a Direct Participant to
record Scripless Treasury Bonds and Scripless Treasury Bills
which are held by it as legal owner and which are subject to a
trust as recognized in terms of regulations made under the
Registered Stock and Securities Ordinance and the Local Treasury
Bills Ordinance, respectively. The legal ownership to securities
held in a Trust Account shall vest in the Direct Participant while
the beneficial ownership to securities held in a Trust Account
shall vest in the person or persons for whose benefit such
securities are held in terms of the relevant trust.

6. Transactions in Scripless Treasury Bills and Scripless Treasury Bonds


shall be carried out as provided in Scripless Treasury Bills (Transactions)
Regulations, No.2 of 2004 and Scripless Treasury Bonds (Transactions)
Regulations, No.2 of 2004 respectively.
7. Notwithstanding anything in these regulations or Scripless Treasury Bills
(Transactions) Regulations, No.2 of 2004 or Scripless Treasury Bonds
(Transactions) Regulations, No.2 of 2004, a transferee acquires rights to the extent
of the interest transferred in the security that the transferror had or had the power
to transfer. Except where a transfer of a security is out of a designated securities
account, the transferee acquires the transferrors interest in the security free of any
adverse claims where the security in which such interest was acquired was posted
to the transferees securities account, and the transferee gave value, without notice
of any adverse claim. In the case of a securities account which is subject to a trust
recognized in terms of regulations made under the Local Treasury Bills Ordinance
and the Registered Stock and Securities Ordinance, the mere notice that the
transferror acts as a trustee is not a breach of trust or authority, and is not notice
of an adverse claim for the purpose of this regulation.

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For the purposes of this regulation, designated securities account means a


securities account in which title to securities held in it is stated to be subject to
adverse claims, and the following account types shall be deemed to be designated
securities accounts :
Pledge account
Tradable repurchase account
Non-tradable repurchase account
Tradable customer reverse repurchase account
Non-tradable customer reverse repurchase account
ILF account
Domestic Operations Repurchase Account
Domestic Operations Reverse Repurchase Account
Trust Accounts.
8. The Central Bank, participants, and customers of dealer direct
participants shall be identified in accounts maintained in LankaSecure in such
manner and form as may be specified in the System Rules.
9. A participant shall operate its Settlement Account and Securities
Accounts maintained by it subject to the Mandate Agreement and the System
Rules. A participant who is a dealer direct participant shall comply with applicable
written law in the maintenance and operation of accounts maintained by it for a
customer.
10. (1) Subject to paragraph (5) of this regulation, the Central Bank shall
issue to every customer of a dealer direct participant to the last address of such
customer recorded by the dealer direct participant on LankaSecure :
(a)

as and when a Scripless Security is credited to or debited


from an account held for such customer, a confirmation of
the transaction ; and

(b)

a monthly statement in respect of each such account.

(2) The Central Bank shall, following upon the payment of interest or
maturity proceeds on Scripless Securities, issue to every customer of a dealer
direct participant, a statement of interest and maturity payments made to such
dealer direct participant in respect of the Scripless Securities in respect of which
the customer is recorded as owner.
(3) Every dealer direct participant shall be responsible for the timely
recording and updating of information relating to its customers as required by the
System Rules issued by the Central Bank.
(4) The Central Bank shall not be responsible for ascertaining the
correctness of information relating to a customer as is provided by a dealer direct

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participant to the Central Bank and shall update any such information only upon
such information being provided to the Central Bank by the dealer direct
participant.
(5) The Central Bank shall not be responsible for issuing confirmations of
pledge transactions to customers of dealer direct participants or statements in
respect of Pledge Accounts maintained for customers by dealer direct participants
and the responsibility to issue such confirmations and statements to a customer of
a dealer direct participant shall vest with such dealer direct participant. The dealer
direct participant shall issue to every such customer, to the address of such
customer recorded with the dealer direct participant, a confirmation of a pledge
transaction carried out for the customer and a monthly statement of Pledge
Accounts maintained for the customer. The Central Bank may specify the form in
which such confirmations and statements should be issued.
11. The Central Bank shall, where it is required to do so by an Order of
Court or where it is empowered to do so in terms of any written law, freeze a
Settlement Account or a Securities Account in LankaSettle, or prohibit or restrict
transfers to or from any such account, or effect a transfer to or from any such
account.
12.

In these regulations unless the context otherwise requires :

Accession Agreement means the agreement in the specified form entered


into by a direct participant with the Central Bank by which the
participant is admitted to participate on LankaSettle ;
Advance claim means a claim to a property interest in a security credited
to the securities account of a person other than that of the claimant,
including to secure payment of a debt and a beneficial interest under
trust ;
Central Bank means the Central Bank of Sri Lanka established under the
Monetary Law Act ;
customer shall have the same meaning assigned to it in the Registered
Stock and Securities Ordinance and the Local Treasury Bills Ordinance ;
dealer direct participant means a person appointed as a dealer direct
participant under the Registered Stock and Securities Ordinance and the
Local Treasury Bills Ordinance ;
designated non-dealer bidder means a person appointed under the
Registered Stock and Securities Ordinance and the Local Treasury Bills
Ordinance as a designated non-dealer bidder ;
direct participant means a person appointed as a direct participant under
the Registered Stock and Securities Ordinance and the Local Treasury
Bills Ordinance ;
Intra-Day Liquidity or ILF means the provision of funds in LankaSettle
for the duration of a day to a participant against security by the Central
Bank ;

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ILF Agreement means the agreement entered into by a participant in the


specified form with the Central Bank to obtain Intra-Day Liquidity ;
Licensed Commercial Bank means a bank licensed under the Banking Act,
No. 30 of 1988 to carry on banking business as defined in that Act ;
Local Treasury Bills Ordinance means the Local Treasury Bills Ordinance
(Chapter 417) ;
Mandate Agreement means an agreement entered into by a direct
participant with the Central Bank in a specified form for the opening,
maintenance and operation of such direct participants Settlement
Account and Securities Accounts, and in the case of a dealer direct
participant, of Securities Accounts maintained by it for customers ;
Master Repurchase and Reverse Repurchase Agreement means an
agreement entered into by a participant with the Central Bank in a
specified form which governs its Open Market Operations with the
Central Bank ;
Monetary Law Act means the Monetary Law Act (Chapter 422) as
amended from time to time ;
Open Market Operations means operations carried out by the Central Bank
in terms of Part V, Chapter V of the Monetary Law Act ;
Participant means a direct participant or any other person who has been
admitted to participate in LankaSettle upon execution of an Accession
Agreement ;
Pledge Agreement means an agreement executed for the purpose of
creating a pledge of Scripless Securities in accordance with regulations
made under the Registered Stock and Securities Ordinance and the
Local Treasury Bills Ordinance ;
Primary Auction means the allocation and issue of Scripless Securities by
the Government to primary dealers, designated non-dealer bidders and
the Central Bank or to any of them against payment ;
primary dealer means a person appointed as a primary dealer under the
Registered Stock and Securities Ordinance and the Local Treasury Bills
Ordinance ;
Registered Stock and Securities Ordinance means the Registered Stock and
Securities Ordinance (Chapter 420) ;
Scripless Securities shall have the meaning assigned to it in the Monetary
Law Act ;
Securities Accounts mean the accounts maintained in LankaSecure in
terms of these regulations and the System Rules issued by the Central
Bank ;
Settlement Account shall have the meaning assigned to it in the Monetary
Law Act.